The analyst says Advanced Micro Devices, Inc. (AMD) is expensive compared to NVDA, and AI expectations are ‘too high’

We recently published the list The top 10 AI stories and ratings you can’t miss this week Because Advanced Micro Devices, Inc. (NASDAQ:AMD) ranks 6th on the list and deserves a deeper look.

The Federal Reserve currently expects only one rate cut this year, and the market reaction to that development has been calmer than expected, showing that investors are currently not paying attention to the Fed’s actions and are instead focusing their eyes on artificial intelligence, which further continues to push markets higher. Technology companies, small and large, continue to roll out AI-focused products and solutions as funding pours billions into AI. SoftBank recently committed another $5 billion in artificial intelligence investments to 5 companies ($1 billion each). A Wall Street Journal report quoted SoftBank’s chief financial officer as saying that bank chief Masayoshi Son is taking a “break from quarterly earnings meetings to focus on artificial intelligence.”

In this context, it is important to stay ahead of the curve and see what is happening in the AI space.

In this article, we’ll take a look at some of the biggest AI stock ratings updates and stories you can’t miss. We focused on AI stocks that are popular among smart money investors. Why are we interested in stocks that hedge funds invest in? The reason is simple: our research has shown that we can outperform the market by imitating the best stocks of the best hedge funds. As part of our quarterly newsletter strategy, we select 14 small- and large-cap stocks every quarter, and since May 2014, we have returned 275%, beating our benchmark by 150 percentage points (see more details here).

A robotic arm holding a semiconductor chip, highlighting the precision and quality of the company’s production equipment.

Advanced Micro Devices, Inc. (NASDAQ:AMD)

Number of hedge fund investors: 124

Stock of Advanced Micro Devices, Inc. (NASDAQ:AMD) recently fell after Morgan Stanley’s Joseph Moore downgraded its stock to Equalweight from Overweight, saying the Street’s expectations for Advanced Micro Devices, Inc.’s artificial intelligence division. (NASDAQ:AMD) are “too high.” The analyst found Advanced Micro Devices, Inc. (NASDAQ:AMD) expensive compared to competitors like NVDA and AVGO. However, the analyst maintained a $176 stock price target .

Average analyst estimates for Advanced Micro Devices, Inc. (NASDAQ:AMD) are $187.2, which means a growth potential of 17%. Wall Street analysts expect Advanced Micro Devices, Inc. (NASDAQ:AMD) will grow 32.50% this year and 59% next year. Over the next five years, growth will then moderate to 32% annualized, which is still high. Based on EPSA 2025 Forecast from Advanced Micro Devices, Inc. (NASDAQ:AMD), the company’s stock is trading at around 28.6X forward P/E, which is not high considering Advanced Micro Devices, Inc.’s ratios. (NASDAQ: AMD) growth trajectory and catalysts.

In its fourth quarter 2023 investor letter, Meridian Contrarian Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD):

“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chip manufacturer specializing in central processing units (CPUs), which are considered the core element of most computing devices, and graphics processing units (GPUs), which accelerate operations performed on processors. We invested in 2018 when it was a mid-cap stock that had been plagued by years of underperformance due to lagging technology and losing high market share compared to rivals Intel and Nvidia. Our research found that the changes and investments made by current management under CEO Lisa Su ultimately resulted over several years in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested in the belief that AMD’s valuation at that time did not reflect the potential of its technology leadership to generate significant market share gains and higher profits. This thesis has been developed for several years. This quarter, AMD revealed more details about its upcoming GPU products for the artificial intelligence market. The stock market reacted positively to expectations that AMD 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 share in large and growth markets and is reasonably valued relative to the potential for significantly higher earnings.

Generally, Advanced Micro Devices, Inc. (NASDAQ:AMD) is ranked No. 6 on Insider Monkey’s list titled The top 10 AI stories and ratings you can’t miss this week. While we see AMD’s potential, our belief is based on the belief that the under-the-radar AI stock promises higher returns, and in a shorter period of time. If you’re looking for an AI stock that has more promise than AMD but trades at less than 5x earnings, check out our report on cheapest AI stocks.

READ ON: Michael Burry is selling these shares AND Jim Cramer recommends these stocks.

Disclosure: None. This article was originally published on Insider Monkey.