The stock market has recently soared to all-time highs, especially in the tech sector. S&P500 (SNPINDEX: ^GSPC) While market indexes have risen 49% over the past two years, the tech-heavy Nasdaq Composite Index has (NASDAQINDEX: ^IXIC) The index soared 68%. Both market trackers traded about 1% below their all-time highs on Thursday, November 14th.
But not all tech stocks got the memo about this sustained surge. Despite Advanced Micro Devices playing an active and profitable role in the artificial intelligence (AI) boom, (NASDAQ: AMD) and Micron Technology (NASDAQ:MU) It is trading more than 30% below its peak price.
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Thanks to recent discounts, I think Micron and AMD are both good AI investments. Let’s take a closer look at these underrated AI winners.
How Micron and AMD relate to the AI opportunity
These AI hardware specialists work in the shadow of more popular rivals, led by Nvidia. But they are jumping in with both feet at the AI opportunity. Here’s what you need to know about Micron and AMD’s AI products.
AMD designs high-performance computer processors. The company’s product portfolio includes the Ryzen series for desktops and notebooks, the Epyc series of server-grade chips, and the Instinct collection of AI computing accelerators.
Instinct chips work directly with Nvidia’s AI accelerator solutions, and we often see AI supercomputers managing AI accelerator computations with Epyc processors. System builders can combine AMD or Nvidia accelerators with AMD and Intel server processors, and nearly every combination will be found in the world’s largest supercomputers in 2024.
Nvidia and AMD AI accelerators are bundled with tons of fast memory. A single Nvidia H200 card has 141 gigabytes (GB) of accelerator memory. AMD’s rival, the Instinct 205X, has 128 GB of fast memory.
Additionally, these large memory stores do not include memory associated with the Intel or AMD processors running the show. It also doesn’t take into account the memory-based solid-state devices (SSDs) that provide long-term storage for these computing beasts.
And that’s just the backend of the AI business. Smartphones and other consumer devices with AI capabilities also require more memory than older devices without AI. Micron, a leading manufacturer of high-speed memory chips, is directly benefiting from this booming demand for memory.
How AI is driving revenue growth today
For these companies, the AI market is more than just a future opportunity.
AMD’s third-quarter revenue increased 18% year-over-year, led by a 122% jump in its data center division. This is the division responsible for AMD’s Epyc and Instinct chips used in AI servers.
Micron’s most recent fourth quarter report showed a 93% year-over-year increase in revenue. Again, fuel for this fire is “robust demand for AI” and surging data center sales, the report says.
Achieving low-cost, high-level AI growth
If you look at their reported earnings, both stocks look expensive. AMD has a price-to-earnings ratio of 124 times and free cash flow of 145 times. These metrics for Micron are 147 and 909, respectively. So it’s understandable that traditional value investors avoid these stocks.
But chip experts are recovering from a long slump in the semiconductor sector, hobbled by stubborn manufacturing capacity shortages and the recent inflation crisis. Looking to the future, AMD stock is trading at 27 times next year’s earnings estimates, while Micron’s expected price-to-earnings ratio remains at 7.7 times.
So I think it would be a big mistake to dismiss Micron and AMD as overly expensive growth stories. It took some time to overcome recent back-end challenges and generate strong bottom lines again. These AI stocks look attractive right now, so I highly recommend picking up a few shares while they’re cheap.
Don’t miss out on this potentially lucrative second chance
Have you ever felt like you missed out on buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our team of expert analysts will issue a “Double Down” stock recommendation on a company we think is about to crash. If you’re already worried that you’re missing out on an investment opportunity, now is the best time to buy before it’s too late. And the numbers speak for themselves.
Amazon: If you invested $1,000 when it doubled in 2010, you would have earned $23,818!*
Apple: If you invested $1,000 when it doubled in 2008, you would have earned $43,221!*
Netflix: If you invested $1,000 when it doubled in 2004, you would have earned $451,527. *
We currently have “double down” alerts on three great companies, and we may not see an opportunity like this again anytime soon.
See 3 “Double Down” stocks »
*Stock Advisor returns as of November 11, 2024
Anders Bylund has held positions at Intel, Micron Technology, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: $24 November 2024 short call on Intel. The Motley Fool has a disclosure policy.
The original article “2 Artificial Intelligence (AI) Stocks to Buy on the Dip” was originally published by The Motley Fool.
