The stock market is soaring to record highs these days, especially in the technology sector. The S&P500(SNPINDEX: ^GSPC) market index rose 49% over the past two years, while technology was heavy Nasdaq Composite (NASDAQINDEX: ^IXIC) index soared 68% higher. Both market trackers were trading about 1% below their record prices on Thursday, November 14.
But not all tech stocks got the memo about this continued rise. Despite playing an active and lucrative role in the artificial intelligence (AI) boom, Advanced micro devices(NASDAQ: AMD) And Micron technology(NASDAQ:MU) trading more than 30% below their peak prices.
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I think both Micron and AMD are excellent AI investments thanks to their recent discounts. Let’s take a closer look at these underrated AI winners.
These AI hardware specialists operate in the shadows of more popular rivals, led by Nvidia. However, they have both feet in the AI possibility. Here’s what you need to know about Micron and AMD’s AI products.
AMD designs powerful computer processors. Its product portfolio includes the Ryzen line for desktops and notebooks, the Epyc line of server-grade chips, and the Instinct collection of AI computer accelerators.
The Instinct chips go hand-in-hand with Nvidia’s AI accelerator solutions, and you often see AI supercomputers managing the AI accelerator calculations with Epyc processors. System builders can pair AMD or Nvidia accelerators with AMD and Intel server processors, and almost any combination can be found among the largest supercomputers in the world in 2024.
Nvidia and AMD AI accelerators are bundled with a ton of super-fast memory. One Nvidia H200 card comes with 141 gigabytes (GB) of accelerator memory. AMD’s rival Instinct 205X has 128 GB of fast memory.
And there’s more: These massive memory stores don’t include the memory associated with the Intel or AMD processors running the show. They also don’t take into account the memory-based solid-state devices (SSD) that provide these computing behemoths with long-term storage.
And that’s just the back end of the AI business. Smartphones and other consumer devices with AI features also require more memory than older devices without AI. As a leading maker of fast memory chips, Micron is directly benefiting from this rising demand for memory.
The AI market is more than a future opportunity for these companies.
AMD’s third quarter revenue rose 18% year over year, driven by a 122% increase in the data center segment. That’s the division responsible for AMD’s Epyc and Instinct chips, which are used in AI servers.
In Micron’s recent fourth quarter report, revenue increased 93% year over year. Once again, fueling this fire was “robust demand for AI” and rising data center sales, the report said.
Both stocks look expensive when you focus on their reported results. AMD trades at 124 times earnings and 145 times free cash flow. These statistics are 147 and 909 respectively for Micron. So I understand if traditional value investors stay away from these stocks.
But chip experts are bouncing back from a prolonged downturn in the semiconductor sector, hampered by a persistent shortage of manufacturing capacity and the recent inflation crisis. Switching to a forward-looking perspective, AMD stock is changing hands at 27 times next year’s earnings estimates, and Micron’s forward price-to-earnings ratio stops at 7.7.
So I think it’s a big mistake to write off Micron and AMD as overpriced growth stories. It just took some time to overcome the recent back-end challenges and realize robust profits again. These AI stocks look tempting right now, and I highly recommend buying a few shares while they’re cheap.
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See 3 “Double Down” Stocks »
*Stock Advisor returns November 11, 2024
Anders Bylund has positions in Intel, Micron Technology and Nvidia. The Motley Fool holds positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: Short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
2 Artificial Intelligence (AI) Stocks to Buy on the Dip was originally published by The Motley Fool
