Is Advanced Micro Devices Inc. (NASDAQ:AMD) the best AI stock to buy right now?

We recently published a list Top 10 AI-Driven Stocks That Will Benefit from Coming Volatility. Since Advanced Micro Devices Inc. (NASDAQ:AMD) ranks 7th on the list, it’s worth taking a closer look.

Wolfe Research has joined the ongoing chorus of a market correction as more experts warn of impending volatility amid AI-fueled rising valuations. However, Wolfe Research believes investors will stick to large-cap tech stocks to weather the volatility.

“In our view, volatility will continue to increase over the summer. However, we expect this to be generally positive for Mag 7, secular growers, and the Momentum Trade as a whole in the coming weeks.”

Wolfe analysts expect investors to invest in high-quality stocks that they “can count on” as economic “data surprises” loom. The firm expects “these themes will continue to benefit from an environment where growth is slowing but the Fed is expected to embark on a deep cuts cycle.”

“What’s more, we believe the largest companies driving these trends will once again perform very well during the Q2 earnings season.”

Because Wolfe believes investors are poised to hold on to Magnificent Seven stocks through the coming volatility, and has called The Information Technology (SPG1200-45)(XLK) and Communication Services (XLC) “big winners,” we’ve selected Magnificent Seven stocks and XLK’s top 3 AI stocks for this article. We’ve included the number of hedge fund investors next to each stock. Why are we interested in stocks that hedge funds are investing in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of top 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 significant part of Technology Fund (XLK), which Wolfe said is this year’s “big winner,” and many Wall Street analysts are becoming increasingly bullish on the stock.

Bank of America believes AMD stock is one of the best stocks to buy in the third quarter of 2024.

Advanced Micro Devices Inc. (NASDAQ:AMD) is a pioneer when it comes to AI computing. Advanced Micro Devices Inc. (NASDAQ:AMD) announced the AMD Ryzen 7040 in January of last year. It was the first chip with built-in AI acceleration. Advanced Micro Devices Inc. (NASDAQ:AMD) later introduced the Ryzen 8040. AMD Ryzen AI 300-series laptops are expected to hit the market in July of this year.

Advanced Micro Devices Inc. (NASDAQ:AMD) is also a strong player in the data center space. Advanced Micro Devices Inc. (NASDAQ:AMD) announced 5th Gen Epyc processors (codenamed Turin) and 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 forecast for Advanced Micro Devices Inc. (NASDAQ:AMD) is $187.2, which gives it a potential upside 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 moderate to 32% year-over-year, which is still high. Based on Advanced Micro Devices Inc.’s (NASDAQ:AMD) EPS forecast for 2025, the stock is trading at around 28.6x P/E, which is not high considering Advanced Micro Devices Inc.’s (NASDAQ:AMD) growth trajectory and catalysts.

In its fourth quarter 2023 investor letter, Meridian Contrarian Fund provided the following information 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 component of most computer devices, and graphics processing units (GPUs), which accelerate operations performed on processors. We invested in 2018 when it was a mid-cap company that had been struggling for years due to lagging technology and losing market share to competitors Intel and Nvidia. Our research showed that the changes and investments made by the current management team, led by CEO Lisa Su, over several years ultimately resulted in a compelling technology that made AMD a stronger competitor to Nvidia, and its latest products were superior to Intel’s. We invested on the belief that AMD’s valuation at the time did not reflect the potential of its technology leadership to generate significant gains in market share and earnings improvement, a thesis that has held true for several years. AMD revealed more details about its upcoming GPU products for the AI market during the quarter. The stock responded positively to expectations that AMD’s server GPUs would be a viable alternative to Nvidia. While we have limited our exposure to AMD to strength as part of our risk management practices, we have maintained our 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 7th on Insider Monkey’s list titled Top 10 AI-Driven Stocks That Will Benefit from Coming Volatility. While we recognize the potential of Advanced Micro Devices Inc. (NASDAQ:AMD), our belief is based on the belief that AI stocks offer a better chance of achieving higher returns 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 report on cheapest AI action.

READ ON: Analyst sees new $25 billion ‘opportunity’ for NVIDIA AND Jim Cramer recommends these stocks.

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