Yahoo Finance Is Advanced Micro Devices’ (AMD) ‘AI Story’ Overhyped?
We recently published a list of the Big Tech Funds are Buying These 10 AI Stocks. Since Advanced Micro Devices, Inc. (NASDAQ:AMD) ranks 8th on the list, it deserves a deeper look.
As mega-cap technology stocks continue to soar to new highs, the number of Wall Street analysts highlighting the “concentration of gains” problem are increasing. It’s more than evident now that just a handful of technology companies account for most of the gains in the market, thanks to the AI-fueled rally that is favoring only those companies that are leading in the AI arms race. Barclays analyst Venu Krishna recently said in a report that “Big Tech” has “largely carried the broader U.S. equity market through 1Q24 earnings results.” Krishna said that Q1 results showed the “ongoing dominance” of Big Tech over earnings revisions and margin upside.
“This makes it difficult to argue for a broadening of overweight allocations,” Krishna added. The analyst said this dominance comes at the expense of other sectors as funds cut their exposure to cyclical sectors like industrials, financials and discretionary to go overweight on tech.
Billionaire Steve Cohen’s New AI Fund
Billionaires and VCs are now planning to create their own AI-focused funds to attract money from investors and tap into the unprecedented opportunities unlocked by AI. Bloomberg recently reported that Steve Cohen’s Point72 Asset Management is planning to raise about $1 billion to make a new AI-focused hedge fund. The fund will bet “on and against” companies in AI hardware and semiconductor industries. The report said that billionaire Cohen will be overseeing the fund along with Eric Sanchez. The fund’s expected launch date is later this year or early 2025.
Billionaire Cohen is already ramping up his bets on AI. To see his AI investments this year, click 10 Best AI Stock Picks of Billionaire Steve Cohen.
Since Krishna of Barclays talked about the rise of big tech funds and their concentration into AI, in this article we will take a look at the major AI stocks that form the portfolios of these funds and discuss their growth catalysts and long-term outlook. For that we first listed down all holdings of major tech funds like Technology Select Sector SPDR Fund and iShares Global Tech ETF and picked 10 AI stocks with the highest number of hedge fund investors.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every 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 the fifth biggest holding of the The Technology Select Sector SPDR Fund (XLK), a notable Big Tech fund the likes of which were highlighted by Barclays’ analyst Venu Krishna recently. However, Morgan Stanley recently downgraded the stock, saying market expectations from its AMD business are “too high.”
Morgan Stanley’s Joseph Moore said while he likes AMD’s story, he sees “limited upward revision potential for AI from here and we move to EW, with a preference for NVDA and AVGO among large cap AI semis.”
Advanced Micro Devices Inc. (NASDAQ:AMD) is making waves with its new AI PC offerings. Earlier this month, Advanced Micro Devices Inc. (NASDAQ:AMD) revealed new AMD Ryzen™ AI 300 Series processors equipped with Neural Processing Unit (NPU)1. Advanced Micro Devices Inc. (NASDAQ:AMD) has also introduced next-gen AMD Ryzen™ 9000 Series processors for desktops. Citi recently said in a report that Advanced Micro Devices Inc. (NASDAQ:AMD) is expected to take about 10% of the data center GPU market. This market share would be worth about $15 billion according to Citi’s calculations. Citi analyst Christopher Danely reiterated a Buy rating on the stock with a $176 price target.
Advanced Micro Devices Inc. (NASDAQ:AMD) is a pioneer when it comes to AI PCs. Advanced Micro Devices Inc. (NASDAQ:AMD) announced AMD Ryzen 7040 in January last year. It was the first chip to have built-in AI acceleration. Advanced Micro Devices Inc. (NASDAQ:AMD) later launched Ryzen 8040. Laptops powered by AMD’s Ryzen AI 300 series are expected to hit the market by July this year.
Advanced Micro Devices Inc. (NASDAQ:AMD) is also a strong player in the data center space. Advanced Micro Devices Inc. (NASDAQ:AMD) has teased 5th Generation Epyc Gen CPUs (codename Turin) and their Instinct MI-300 series GPU accelerators. Advanced Micro Devices Inc.’s (NASDAQ:AMD) serve chips are built on Zen5 core CPU architecture.
Average analyst estimate for Advanced Micro Devices Inc. (NASDAQ:AMD) is $187.2, which presents an upside potential of 17%. Wall Street analysts expect Advanced Micro Devices Inc. (NASDAQ:AMD) to grow 33% this year and 59% next year. For the next five years the growth will then moderate to 32% on a per-annum basis, which is still high. Based on Advanced Micro Devices Inc.’s (NASDAQ:AMD) 2025 EPS forecast, the stock is trading at around 28.6X forward P/E ratio, which isn’t high given Advanced Micro Devices Inc.’s (NASDAQ:AMD) growth trajectory and catalysts.
Meridian Contrarian Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth quarter 2023 investor letter:
“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chip maker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which accelerate operations running on CPUs. We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to lagging technology and lost market hi share versus competitors Intel and Nvidia. Our research identified that changes and investments made by current management under CEO Lisa Su had, over several years, finally 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 the belief that AMD’s valuation at that that time did not reflect the potential for its technology leadership to generate significant market share gains and improved profits. 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. Although we pared back our exposure to AMD into strength as part of our risk-management practice, we maintained a position in the stock. We believe AMD will continue to gain 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 8th on Insider Monkey’s list titled Big Tech Funds are Buying These 10 AI Stocks. While we acknowledge the potential of Advanced Micro Devices, Inc. (NASDAQ:AMD), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Advanced Micro Devices, Inc. (NASDAQ:AMD) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
