We recently published a list of Top 10 AI Momentum Stocks to Profit From Coming Volatility. Given that Advanced Micro Devices Inc. (NASDAQ:AMD) ranks 7th on the list, it deserves a closer look.
Wolfe Research has joined the chorus of ongoing market corrections as more experts warn of volatility ahead amid rising valuations driven by AI. However, Wolfe Research believes investors will stick to mega-cap tech stocks to survive this volatility.
“We believe volatility will continue to increase over the summer. However, we expect this to generally benefit the Mag 7, secular producers and the momentum trade as a whole in the coming weeks.”
Wolfe analysts expect investors to flock to quality stocks that they can count on amid “economic surprises.” The firm expects “these themes to continue to benefit from an environment in which growth is slowing, but the Fed is likely to initiate a cycle of deep spending cuts.”
“Additionally, we believe the larger companies driving these trends will once again perform very well in the second quarter earnings season.”
Given that Wolfe believes investors are willing to hold onto Seven Wonders stocks through the upcoming volatility and called Information Technology (SPG1200-45)(XLK) and Communication Services (XLC) “big winners,” we selected Seven Wonders stocks and the top three Seven Wonders AI stocks for this article. For each stock, we noted the number of hedge fund investors. Why do we care about stocks that hedge funds are heavily invested in? The reason is simple: Our research has shown that we can outperform the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Advanced Micro Devices Inc (NASDAQ:AMD)
Number of hedge fund investors: 124
AMD is a big part of the Technology Fund (XLK), which Wolfe said is a “big winner” this year, and many Wall Street analysts are becoming increasingly bullish on the stock.
Bank of America rates AMD as one of the best stocks to buy in Q3 2024.
Advanced Micro Devices Inc. (NASDAQ: AMD) is a pioneer in AI-powered PCs. Advanced Micro Devices Inc. (NASDAQ: AMD) announced the AMD Ryzen 7040 in January of last year. It was the first chip to feature AI acceleration. Advanced Micro Devices Inc. (NASDAQ: AMD) then launched the Ryzen 8040. Laptops powered by AMD’s Ryzen AI 300 series are expected to hit the market by July of this year.
Advanced Micro Devices Inc. (NASDAQ: AMD) is also a major player in the data center space. Advanced Micro Devices Inc. (NASDAQ: AMD) introduced its 5th generation Epyc Gen processors (codenamed Turin) and its Instinct MI-300 series GPU accelerators. Advanced Micro Devices Inc.’s (NASDAQ: AMD) server chips are built on the Zen5 core processor architecture.
The average analyst estimate for Advanced Micro Devices Inc. (NASDAQ:AMD) is $187.2, which offers upside potential of 17%. Wall Street analysts expect Advanced Micro Devices Inc. (NASDAQ:AMD) to grow 33% this year and 59% next year. Over the next five years, growth will then slow to 32% on an annual basis, which is still high. Based on Advanced Micro Devices Inc. (NASDAQ:AMD)’s 2025 EPS forecast, the stock is trading at about 28.6X forward P/E, which is not high given Advanced Micro Devices Inc.’s (NASDAQ:AMD) growth trajectory and catalysts.
The Meridian Contrarian Fund said the following about Advanced Micro Devices, Inc. (NASDAQ: AMD) in its Q4 2023 investor letter:
“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chipmaker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which accelerate the operations performed on the CPUs. We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to lagging technology and loss of market share to competitors Intel and Nvidia. Our research identified that the changes and investments made by current management under CEO Lisa Su over the years had ultimately resulted in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested on the belief that AMD’s valuation at that time did not reflect the potential of its technology leadership to drive meaningful market share gains and improve earnings. This thesis has been playing out for several years. During the quarter, AMD unveiled more details about its upcoming GPU products for the AI market. The stock reacted positively to expectations that AMD’s GPU servers will be a viable alternative to Nvidia. “While we have reduced our exposure to AMD as part of our risk management practice, we have maintained a position in the stock. We believe AMD will continue to gain market share in large and growing markets and is reasonably valued relative to the potential for significantly higher earnings.”
Overall, Advanced Micro Devices Inc. (NASDAQ:AMD) ranks 7th on Insider Monkey’s list of Top 10 AI Momentum Stocks to Profit From Coming Volatility. While we recognize the potential of Advanced Micro Devices Inc. (NASDAQ:AMD), we believe AI stocks have more promise to deliver higher returns, and in a shorter time frame. If you are looking for an AI stock that is more promising than Advanced Micro Devices Inc. (NASDAQ:AMD) but is trading at less than 5 times earnings, check out our stock report the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.