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When it comes to artificial intelligence (AI) stocks, the same name is always at the top of retail investors' and pundits' lists: NVIDIA Corp. ( NASDAQ: NVDA ). But despite the semiconductor company's incredible run over the past 18 months — which has seen its shares rise an absurd +768% — it is never a good idea to put all your (AI) eggs in one basket.
In part, that is one reason why the popularity of AI-themed exchange-traded funds (ETFs) is on the rise. But if you are looking for a single stock AI play rather than ETF exposure, there are handfuls of AI-leveraged companies whose stocks could, for one or several reasons, be the top AI performers for the rest of the year with the potential to even outperform NVIDIA in the second half of 2024. (And some which I would not touch with a 10-foot pole .)
And when focusing specifically on microchip manufacturers — which is what NVIDIA does and why its products are in such incredibly high demand — these ancillary AI companies present some interesting prospects for investors' portfolios. One in particular catches my eye. That is because the industry itself is exploding and no one company — not even NVIDIA — will be able to handle the resulting heightened demand. Takeaways
News Points
- The microchip industry is poised to explode by 2030 as more competitors will be able to take market share away from NVIDIA.
- Advanced Micro Devices Inc. market cap is approaching $300 billion and its stock is up nearly 30% this year.
- Many AI stocks dropped this last week due to political fears. If you want to pick up some of the most high upside stocks in the market “on sale,” check out our brand-new “ The Next NVIDIA ” report that lays out the next megatrends in AI and the companies we’re confident can dominate them.
The AI Microchip Industry
Briefly, an overview of the semiconductor and microchip industry can provide a strong understanding of why stocks like NVIDIA and its competitors are poised for strong performances over the short and medium terms.
According to market consultancy firm Grand View Research, the compound annual growth rate (CAGR) for the global market for these AI-essential components is 8.2% from 2024 to 2030. Market volume for these companies' microprocessors was 2.66 billion units in 2023, and that figure is expected to grow to 3.9 billion units by 2030.
On June 13, 2024, three days after NVIDIA's most recent stock split , the company's CEO Jensen Huang embarked on a stock-selling frenzy that has seen him offload 2.04 million shares in increments of 120,000 each through July 10, according to financial visualization platform Finviz. The selling may suggest that NVIDIA is losing market share and insiders could be expecting slower gains, or even that the stock's performance may taper off and be flat or in the red through the second half of the year.
Whatever the reason, Huang is grabbing gains hand over fist. If that is the case, one reason could be the aforementioned increased competition in that industry. And one company in particular is already helping meet that demand that NVIDIA alone cannot keep up with.
Investing in a Major NVIDIA Competitor
Enter Advanced Micro Devices Inc. ( NASDAQ: AMD ), a $290.37 billion market cap company who has seen its stock rise 29.61% so far this year, 61.35% over the past year and 440.89% over the past five years. But given factors like demand and burgeoning AI applications, I suspect those gains are far from over.
The use for semiconductors and microchips for AI is seeing growing demand in the personal computing space, which is why Advanced Micro Devices' already impressive client list now includes Big Tech giants like Corp. ( NASDAQ: MSFT ), Meta Platforms Inc. ( NASDAQ: META ), Oracle Corp. ( NYSE: ORCL ), Dell Technologies Inc. ( NYSE: DELL ) and Berkshire Hathaway-owned HP Inc. ( NYSE: HPQ ).
Founded in 1969, the Santa Clara, Calf.-based company is located in the center of Silicon Valley and has made a name for itself as a leader in chip development. Ten years ago, in 2014, Advanced Micro Devices boasted a market cap of $2.95 billion. Today, that has ballooned to $295 billion. The represents growth of 9,900% in just a decade.
The company's stock has an impressive track record of earnings beats, having only missed EPS forecasts once in over the past 15 quarters dating back to October 2020. In the first quarter of 2024, AMD posted quarterly revenue of $5.47 billion. In the second quarter of this year, quarterly revenue was $5.7 billion. And between those two quarters, the company grew its free cash flow 56.61% from $242 million in the first quarter to $379 million in the second quarter.
AMD Stock Outlook
Technical indicators show ongoing strength in Advanced Micro Devices' one-year stock chart. Specifically, it is trading comfortably above its 50- and 200-day moving averages — the delineators for short- and long-term bullish/bearish — sentiment, while its Relative Strength Index reading has not crossed over into overbought territory (i.e., over 70) since March 2024. On July 3, 2024, AMD used its 50-day moving average as support and bounced higher, and is now steadily trading $20 above that indicator.
Institutional holding for Advanced Micro Devices, as tracked by Nasdaq.com, has also been robust. Of the company's 1.61 billion shares outstanding, institutional investors hold 68.78%, including enormous investment firms and hedge funds. The top four institutional groups holding the most AMD stock are:
- Vanguard Group Inc., 144.79 million shares valued at $26.63 billion
- Blackrock Inc., 124.57 million shares valued at $22.91 billion
- State Street Corp, 67.78 million shares valued at $12.46 billion
- JPMorgan Chase & Co, 39.24 million shares valued at $7.22 billion
Bottom Line
The Wall Street Journal's analysts give Advanced Micro Devices a one-year median price target of $195.76, a low-end price target of $125 and a high-end price target of $250. At the time of writing, the stock is trading for $178.07, meaning at the high-end, there is potential upside of 40.39% over the next year.
As NVIDIA is faced with the prospect of losing business to industry competitors, companies like Advanced Micro Devices are already moving in to fill that market demand. Investors would be wise to keep an eye on AMD in the second half of 2024.
As always, conduct your own due diligence before entering any trade.
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