Forget AMD in 2024: 2 AI Stocks to Buy Instead
Shares in Advanced Micro Devices (AMD) have seen a significant rise in the last year, but there are other AI stocks with better value and potential. Microsoft and Intel are two options that investors should consider.
AMD Shares at High Valuation
Shares in Advanced Micro Devices (AMD) have surged over 130% in the past 12 months, mainly due to the strong growth of artificial intelligence (AI). The launch of OpenAI's ChatGPT technology in late 2022 boosted the market for chip stocks, as it created a demand for the hardware required to run and train AI models.
While AMD holds the second-largest market share in graphics processing units (GPUs) and has plans to release a new AI chip this year, its valuation is a cause for concern. The company's forward price-to-earnings ratio (P/E) has risen by 58% since January 2023, reaching a high of 45. Additionally, its free cash flow has dropped by 47% in the same period. These factors indicate that AMD's shares may be riskier compared to other AI stocks that offer better value and financial stability.
1. Microsoft
Microsoft has emerged as a major player in the AI industry, thanks to its heavy investment in OpenAI. The company has integrated AI technology across its product lineup and has introduced new AI features to its cloud platform Azure, search engine Bing, and Office software suite.
One of Microsoft's recent offerings is Copilot, an AI assistant that comes as an add-on to its Microsoft 365 subscription service. Copilot has generative capabilities like creating drafts in Word, generating presentations based on simple prompts, and producing data visualizations in Excel. This AI assistant has the potential to significantly boost Microsoft's earnings.
Microsoft's stock has risen by 64% in the past year, and its impressive free cash flow of over $62 billion in 2023 indicates that the company has the resources to continue investing in AI and maintain its position in the industry. With a lower forward P/E ratio compared to AMD, Microsoft is a strong choice for investors looking to capitalize on AI in 2024.
2. Intel
Intel is another viable option for investors interested in AI stocks. Although Intel's stock has dropped by nearly 13% after weak guidance, the company has been investing heavily in generative technology and AI chips. Its range of AI chips, including Gaudi3, Core Ultra processors, and Xeon server chips, are designed to rival offerings from Nvidia and AMD.
While Intel faces challenges in the CPU market, the growth of AI provides an opportunity for the company to regain strength. With a forward P/E ratio of 32, Intel is considered to be a more affordable AI stock compared to AMD, Nvidia, and Amazon. As Intel expands its presence in AI and focuses on GPU production and profit growth, it can potentially deliver significant gains to investors in the long term.
