Is this AI hardware a good buy?

We recently created a list The 15 best computer hardware stocks according to hedge funds. In this article, we will take a look at where Advanced Micro Devices, Inc. (NASDAQ:AMD) compares to other hardware stocks.

The first half of 2024 is coming to an end and artificial intelligence continues to play a dominant role in the stock market. Companies that design semiconductors for artificial intelligence applications, or those that use them to streamline their internal operations such as coding, or offer products to customers, also saw strong gains. They reflect optimism on Wall Street when it comes to accelerated data processing technologies, collectively known as artificial intelligence.

In fact, the impact of AI has been so strong that it has not only upended the status quo most valuable companies in terms of market capitalization, but it has also enabled some of the leading AI companies to record triple-digit percentage returns on their share prices over the last twelve months. Shares of some of the best-performing AI companies are up 213% over the last twelve months and are up 773% since November 2022. Back then, the stock market was jumping following rapid interest rate increases by the Federal Reserve, which hit technology companies particularly hard because they benefit from rapid growth and low interest rates.

Since then, however, AI’s impact on the stock market has resulted in triple-digit percentage gains in some stocks. At the same time, it also means that the major indexes continue to show solid performance, driven by the prices of large-cap technology stocks.

In 2024, the market has moved away from investing in artificial intelligence companies that can change the world with their hardware or software, to assessing whether these companies are achieving results. A prime example of this phenomenon was the first quarter of the 2024 earnings season, in which Wall Street went mercilessly on companies large and small that showed even the slightest indication that they were unable to increase their revenues by targeting AI or controlling market. costs of investing in new technologies.

There are different categories of companies in the AI industry. Most of them, such as OpenAI, operate on the software side. This sub-segment of the industry develops applications such as chatbots and other assistants, and also extends the use of artificial intelligence to existing software such as image editing tools. AI hardware companies are powering these applications and, compared to software companies, not only are they achieving stable valuations, but they are also seeing investors take comfort in the fact that demand for their products is much more stable and predictable compared to demand for software. Recently, Goldman Sachs released the bullish report on computer hardware stocks powered by artificial intelligence that we discussed Goldman’s Top 15 Hardware Stocks. In this article, we approach the same topic from a different perspective, and there are huge differences between both rankings of hardware companies.

Our methodology

To create a list of hedge funds’ top picks, we ranked PCs, semiconductors and hardware by the number of hedge funds that bought shares in the first quarter of 2024. Of these, the stocks with the most hedges were selected by the fund’s investors. Basically, our article lists the best hardware stocks to buy according to over 900 hedge funds monitored by Insider Monkey. Why do we care about what hedge funds do? 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).

Close-up of an assembled PCB with several integrated semiconductor parts.

Advanced Micro Devices, Inc. (NASDAQ:AMD)

Number of hedge fund shareholders in Q1 2024: 124

Advanced Micro Devices, Inc. (NASDAQ:AMD) designs and sells graphics processors and accelerators used in artificial intelligence. June 2024 was a big month for the company as it joined NVIDIA at Computex to announce a slew of new AI computing products. During the event, Advanced Micro Devices, Inc. (NASDAQ:AMD) announced the launch of Ryzen AI 300 series chips, which it claims offer the “fastest APU performance” in the world. Average of 41 one-year analyst stock price targets for Advanced Micro Devices, Inc. (NASDAQ:AMD) is trading at $187 and the stock has an average rating of Strong Buy.

In the case of investment shares in the first quarter of 2024, shareholders of Advanced Micro Devices, Inc. (NASDAQ:AMD) there were 124 hedge funds covered by the Insider Monkey program. Ken Fisher Fisher Asset Management had the most valuable stake worth $5.2 billion.

History of Advanced Micro Devices, Inc. (NASDAQ:AMD) stock has seen steady growth over the past few years. The future may also look bright as the market has set a forward P/E ratio for the company of 49. Compared to the market ratio of 21, the company’s stock will maintain strong growth in the future. In its Q4 2023 investor letter, Meridian Funds commented on the situation of Advanced Micro Devices, Inc. (NASDAQ:AMD) and shared the following:

Advanced Micro Devices, Inc. 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 company that was struggling with years of underperformance due to lagging technology and loss of market share compared to rivals Intel and Nvidia. Our research found that 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. Although 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 its valuation is reasonable relative to the potential for significantly higher earnings.

AMD in general takes 4th place on our list of the best gear stocks to buy. You can visit The 15 best computer hardware stocks according to hedge funds to see other computer hardware companies on hedge funds’ radar. While we recognize AMD’s potential as an investment, we believe that some AI stocks have the potential to deliver higher returns 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.

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