Is Advanced Micro Devices Inc. (NASDAQ:AMD) the AI Stock to Buy in 2024?

We recently published a list Top 10 Overbought AI Stocks of 2024. Since Advanced Micro Devices Inc. (NASDAQ:AMD) ranks 7th on the list, it’s worth taking a closer look.

The second half of 2024 is here, and with the Federal Reserve’s rate cuts remaining elusive, warnings about valuations and AI-fueled market hype are only getting louder. Many prominent Wall Street analysts have recently warned that markets remain more concentrated than ever, with only a few stocks accounting for the majority of gains, thanks to their dominance in the AI industry. Many also believe that the market is ripe for a correction, as it has entered overbought territory. Financial services firm BTIG recently reported that the world’s fifth-largest exchange-traded fund by assets under management (AUM), QQQ Trust Series 1, is currently trading “in” overbought territory based on its Relative Strength Index technical indicator. QQQ tracks the Nasdaq-100 Index, and it’s not surprising that the ETF is showing signs of overbought territory as more investors flock to large-cap tech stocks to get on board with AI.

In this article, we scanned the Invesco QQQ Trust Series 1 ETF and selected the fund’s top tech holdings with higher Relative Strength Index (RSI) values. Typically, an RSI of 60 or higher indicates that a stock is overbought. We also mentioned the number of hedge fund investors in these stocks. Why are we interested in the stocks that hedge funds invest 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

Advanced Micro Devices, Inc. (NASDAQ:AMD) has a PE ratio of 233.67, which is even higher than Nvidia’s. It’s a key part of the QQQ ETF, which BTIG believes has entered bribery territory.

Morgan Stanley’s Joseph Moore said that while he likes AMD’s story, he sees “limited growth potential for AI and we’re moving toward EW, favoring NVDA and AVGO among the large AI semiconductor stocks.”

Advanced Micro Devices Inc. (NASDAQ:AMD) is making waves with its new AI PC offerings. Earlier this month, Advanced Micro Devices Inc. (NASDAQ:AMD) unveiled new AMD Ryzen™ AI 300 Series processors featuring a Neural Processing Unit (NPU).1 Advanced Micro Devices Inc. (NASDAQ:AMD) also introduced next-generation AMD Ryzen™ 9000 Series desktop processors. Citi recently reported that Advanced Micro Devices Inc. (NASDAQ:AMD) is expected to capture about 10% of the data center GPU market. That market share would be worth about $15 billion, according to Citi calculations. Citi analyst Christopher Danely reiterated a Buy rating on the stock with a $176 price target.

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 will 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 Overbought AI Stocks of 2024. 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 earnings 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.