Is Advanced Micro Devices (AMD) the best AI semiconductor stock according to Cathie Wood?
We recently published a list of Cathie Wood’s 11 Favorite AI Stocks. Since Advanced Micro Devices, Inc (NASDAQ:AMD) is ranked 8th on the list, it deserves a closer look.
Cathie Wood‘s flagship fund continues to struggle with steep losses amid a broader decline in technology stocks. Wood’s flagship fund, the ARK Innovation ETF (NYSEARCA:ARKK), is down about 18% so far this year and has lost about 75% of its value since its 2021 peak. However, the latest data shows the innovation-focused investor has been buying into tech stocks following the recent sell-off that rocked financial markets around the world.
Investors have pulled about $2.2 billion out of ARK funds in 2024. The fund is on track to have its worst year of investor flight since 2014. But Cathie Wood is doubling down on her bets on innovation and is confident that the upcoming rate cuts will have a positive impact on the stock market.
Cathie Wood says: “Something is changing” and the Fed is now on “high alert”
Regarding the market situation, Cathie Wood said in a latest video on her YouTube channel that the recent sell-off shows that the market is going through a “cathartic” phase and “something is changing.”
“I think the Fed is on high alert now because the stock market seems to be encouraging the Fed to keep interest rates higher for longer and get inflation out of the system.”
Cathie Wood said that with interest rates high, companies are now in a weaker position and are initiating layoffs to cut costs and increase productivity. This weak employment situation could prompt the Federal Reserve to start cutting interest rates, Wood said.
“Falling interest rates should have a very positive impact on equity markets, but they will not end a recession very quickly. If consumers and businesses actually know that interest rates and perhaps prices are going to fall, what will they do? They will wait and see.”
Cathie Wood’s ARK has released its latest stock holdings data as of the end of the June quarter. For this article, we scanned the fund’s latest portfolio and selected 11 AI stocks in which it holds positions. Why do we care about the stocks 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 the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (Further details can be found here).
Advanced Micro Devices, Inc. (NASDAQ:AMD)
Cathie Wood’s current share value: $38,411,004
Morgan Stanley’s Joseph Moore said that while he likes AMD’s story, he “sees limited upside potential for AI from here and we now turn to EW, with a preference for NVDA and AVGO among the major AI semiconductor companies.”
Advanced Micro Devices, Inc (NASDAQ:AMD) impressed Wall Street with solid second-quarter results on strong data center revenue. Data center revenue increased 49% year over year during the period.
But can Advanced Micro Devices, Inc (NASDAQ:AMD) continue to gain in the coming months? Analysts are confident given the launch of the Instinct™ MI300 series accelerators, designed for AI and HPC workloads. The new chip competes with Nvidia’s H100 AI chip. Advanced Micro Devices, Inc (NASDAQ:AMD) now plans to launch new AI chips annually, including the MI325X in the fourth quarter of this year, the MI350 in 2025, and the MI400 in 2026. Advanced Micro Devices, Inc (NASDAQ:AMD) said the MI350 will be a competitor to Nvidia’s Blackwell.
Advanced Micro Devices, Inc (NASDAQ:AMD)’s data center business doubled its revenue, but that growth didn’t come at the expense of profits. The segment’s operating income grew 405% compared to the same period last year. However, Advanced Micro Devices, Inc (NASDAQ:AMD)’s data center business is still very small compared to NVDA. It generated about $2.8 billion in revenue versus $22.6 billion in quarterly revenue for NVDA. However, Advanced Micro Devices, Inc (NASDAQ:AMD)’s CPU and GPU businesses are also thriving. Ryzen CPU sales grew 49% year-over-year and slightly quarter-over-quarter. Although gaming sales fell 59% due to lower PlayStation and Xbox sales, Advanced Micro Devices, Inc (NASDAQ:AMD)’s Radeon 6000 GPUs saw year-over-year sales increase.
Advanced Micro Devices, Inc (NASDAQ:AMD) is trading 17% below its 3-year average P/E ratio. The company is expected to grow its earnings per share by 43% over the long term, compared to 33% for Nvidia. Third-quarter revenue is expected to grow by 15% compared to the previous quarter. Given growth projections based on new chips and an expected increase in AI spending by other companies, Advanced Micro Devices, Inc (NASDAQ:AMD) stock is undervalued at current levels with a P/E ratio of 38.
Meridian Contrarian Fund announced in its Investor letter for the fourth quarter of 2023:
Advanced Micro Devices, Inc. AMD (NASDAQ:AMD) is a global semiconductor chipmaker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which speed up the operations running on the CPUs. We invested in 2018 when it was a mid-cap value stock that had underperformed for many years due to lagging technology and was losing market share to rivals Intel and Nvidia. Our research found that changes and investments by current management under CEO Lisa Su over several years had 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 because we believed that AMD’s valuation at the time did not reflect the potential of its technology leadership to deliver significant market share gains and improved profits. This thesis has held true for several years. During the quarter, AMD revealed 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 have reduced and increased our exposure to AMD as part of our risk management, we have maintained our position in the stock. We believe that AMD will continue to gain market 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 of the title Cathie Wood’s 11 Favorite AI Stocks. While we recognize the potential of Advanced Micro Devices, Inc (NASDAQ:AMD), we believe AI stocks promise higher returns and do so in a shorter period of time. If you’re looking for an AI stock that’s more promising than AMD but worth less than five times its earnings, read our report on the cheapest AI stock.
READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.
Disclosure: None. This article was originally published on Insider Monkey.
