When it comes to the U.S. stock market, change is the only constant. History makes it clear; stocks rise to unprecedented heights, and with time, new leaders emerge. To identify these new front-runners, Wall Street often groups them together, setting them apart from the rest of the market. The FAANG acronym, conceived by CNBC financial analyst Jim Cramer in 2017, spotlighted five of the largest technology companies at the time. This elite circle comprised Meta Platforms, Apple, Amazon, Netflix, and Alphabet.
In 2023, the spotlight shifted to a cohort of seven stocks. Coined the “Magnificent Seven” by Bank of America analyst Michael Hartnett, this group steered the S&P 500 index to an annual return double its historical average. The Magnificent Seven included Meta Platforms, Apple, Amazon, Alphabet, Microsoft, Nvidia (NASDAQ: NVDA), and Tesla.
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Emergence of the “AI Five”
However, with Tesla’s stock lagging by 22% in 2024, Jim Cramer believes it’s time to evict Tesla from the Magnificent Seven altogether. Facing a slump in electric vehicle sales, Tesla’s performance threatens to weigh down the group’s collective influence.
This prompted Glen Kacher from Light Street Capital to spearhead a complete reevaluation of the stock market’s dominion. Advocating a pivot towards artificial intelligence (AI), Kacher unveiled a fresh cluster of stocks – the “AI Five,” featuring Nvidia, Microsoft, Taiwan Semiconductor Manufacturing, Advanced Micro Devices (NASDAQ: AMD), and Broadcom (NASDAQ: AVGO). Each entity wields the capability to develop the hardware and software crucial for AI’s manifestation.
Champions of the AI Revolution
1. Advanced Micro Devices (AMD)
When it comes to semiconductor stocks in 2024, Advanced Micro Devices emerges as a prime candidate. The corporation’s latest MI300 data center chips target AI workloads, presenting formidable competition to Nvidia’s leading H100.
The MI300 comes in two configurations. The MI300X mirrors Nvidia’s pure graphics processor (GPU) H100, while the MI300A fuses GPU and central processing unit (CPU) hardware, forming the world’s inaugural accelerated processing unit (APU) tailored for data centers. The MI300A is set to power the El Capitan supercomputer at the Lawrence Livermore National Laboratory, anticipated to reign supreme upon its deployment later this year.
Industry titans such as Meta Platforms, Microsoft, and Oracle are racing to adopt MI300 chips. Hitherto reliant predominantly on Nvidia, these entities are now seeking viable alternatives due to supply constraints – a demand that AMD is poised to meet.
In the fourth quarter of 2023, AMD released an optimistic forecast for the MI300. Originally projected to yield sales of $2 billion in 2024, the estimation was revised upwards to $3.5 billion, eliciting delight among investors.
AI is also migrating to personal computers, enabling on-device AI processing for swifter experiences, diminishing dependence on external data centers. AMD’s Ryzen AI series of neural processing units (NPUs) powers over 50 notebook designs, with the company collaborating with Microsoft to develop a more efficient version of Windows optimized for AI workloads.
Millions of personal computers already integrate Ryzen AI chips, affording AMD a commanding 90% market share in the domain. Ryzen AI bolstered the company’s Client segment revenue to $1.5 billion in the fourth quarter, signifying a staggering 62% year-over-year surge. AMD anticipates this momentum to persist, especially with preparations underway for the launch of a next-generation chip, positioned to deliver over threefold acceleration.
2. Broadcom
Despite residing in the shadows of illustrious names such as AMD and Nvidia, Broadcom is carving a niche as an AI stock. Propelling a 343% return over the past five years, the company is indisputably deserving of recognition. Since its fusion with semiconductor giant Avago Technologies in 2016, Broadcom transcended into a conglomerate, assimilating entities like semiconductor device supplier CA Technologies, cybersecurity giant Symantec, and cloud software developer VMware, marking expenditures totaling a whopping $98.6 billion since 2018.
VMware, alone valued at $69 billion, assumes increasing relevance in the AI upsurge, offering software that optimizes cloud infrastructure by facilitating the operation of virtual machines. This mechanism boosts operational efficiency, allowing multiple users to leverage a server’s capacity, a pivotal strategy for companies clamoring for AI data center infrastructure.
Moreover, Broadcom is distinguished as a leader in networking and server connectivity solutions for the data center. Pioneering the high-bandwidth switch Tomahawk 5, tailored to accelerate AI and machine learning workloads, the company achieved record revenue of $35.8 billion in fiscal 2023, marking an 8% surge from fiscal 2022. Anticipated inclusion of VMware’s financial outcomes is forecasted to escalate Broadcom’s revenue by 40% in fiscal 2024, anticipated to reach $50 billion.
Broadcom: A Diamond in the Tech Sector
After reporting a staggering $42.25 in non-GAAP (adjusted) earnings per share in fiscal 2023, Broadcom is currently basking in a luxurious stock price of $1,226.55, thus trading at a price-to-earnings (P/E) ratio of 29.1. In the world of numbers and figures, this shines brightly as a 9% discount to the 32.1 P/E of the Nasdaq-100 index, pointing to Broadcom’s undervaluation in comparison to its peers in the tech sector.
Broadcom: A Golden Opportunity in the Tech Sector
As the company’s influence in the realm of artificial intelligence continues to expand through strategic acquisitions and in-house innovation, Broadcom shines as a beacon, guiding investors to a treasure trove of potential. With the stock still trading at a discount, this is the equivalent of stumbling upon a rare gem being sold at a flea market price – an opportunity that simply cannot be ignored.
Follow the Experts: The Motley Fool’s 10 Best Stocks
Boasting a remarkable track record spanning two decades, the analyst team at Motley Fool Stock Advisor has unveiled the names of the 10 best stocks for investors to consider at this very moment. And amidst this prestigious list, Advanced Micro Devices has secured a spot. However, the spotlight doesn’t shine solely on AMD, with 9 other stocks silently waiting to be discovered. Would you want to overlook such potential?
Transparent Affiliations: A Net of Associations
As with any venture, it’s crucial to glean insights from those who understand the intricate dance of the market. Unveiling affiliations and associations, it’s interesting to note that Randi Zuckerberg graces The Motley Fool’s board of directors, bringing an aura of Silicon Valley wisdom. Meanwhile, the advertisement partnership between The Ascent and Bank of America illuminates the intersection of finance and investment. Unveiling the faces behind the names, it becomes evident that experienced individuals such as Mark Zuckerberg’s sister and professionals from Amazon and Alphabet are involved in navigating The Motley Fool’s destiny. Transparency elicits trust, ensuring that you tread the waters of investment with informed confidence.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
