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Artificial intelligence (AI) has taken the world by storm, with companies racing to capitalize on the immense promise it holds. From groundbreaking innovations to game-changing applications, the AI revolution is reshaping industries and redefining the future.
While chip giant Nvidia Corporation (NVDA) has long been a frontrunner in AI technology, benefiting immensely from the growing demand for AI-powered applications and systems, Melius Research analyst Ben Reitzes has highlighted three other AI candidates that he thinks are due to run higher: Apple Inc. (AAPL), Advanced Micro Devices, Inc. (AMD), and Intel Corporation (INTC).
The analyst believes that these three tech titans are poised to “catch up” with the performance of AI winners like Nvidia in the second half of the year, which means investors can still scoop up these stocks to benefit from the AI boom. Here’s a closer look.
AI Stock #1: Apple
Cupertino-based Apple Inc. (AAPL), with a staggering market cap of around $3.5 trillion, needs no introduction. Apple consistently sets the gold standard by pioneering the tech landscape with groundbreaking consumer products like the iPhone, iPad, Mac, AirPods, Apple Watch, and the cutting-edge Apple Vision Pro. Beyond its impressive tech lineup, last month, Apple made its grand entrance into the AI landscape with “Apple Intelligence.” This game-changing reveal catapulted the stock to new heights.
On July 15, the mega-cap stock hit a fresh all-time high of $237.23. More broadly, AAPL has rallied 18% over the past 52 weeks, and is now up about 19% on a YTD basis.
Beyond seizing growth opportunities, the company remains dedicated to rewarding its shareholders. On May 16, Apple paid investors a quarterly dividend of $0.25, marking a 4% increase. Its annualized dividend of $1.00 offers a 0.44% dividend yield. The tech giant also announced a record-breaking $110 billion share buyback alongside its Q2 earnings release, the largest in history.
Following the company’s better-than-expected fiscal Q2 earnings results and its staggering share repurchase plans, Apple shares soared nearly 6% on May 3. The company posted Q2 revenue of $90.8 billion, down 4.3% from the year-ago quarter, driven by a significant 10% year-over-year slump in iPhone sales.
The continued slide in revenue hints at waning demand for its flagship smartphones, which hit the market last September. However, the company’s topline figure managed to narrowly exceed Wall Street’s forecast. During the quarter, the company earned $1.53 per share, also exceeding consensus estimates.
Commenting on the Q2 performance, CFO Luca Maestri said, “Thanks to very high levels of customer satisfaction and loyalty, our active installed base of devices has reached a new all-time high across all products and all geographic segments, and our business performance drove a new EPS record for the March quarter.”
For Q3, due out Aug. 1, management forecasts total revenue growth in the low single digits year-over-year. The services business is expected to deliver double-digit growth. Analysts tracking Apple expect the company’s profit to reach $6.59 per share in fiscal 2024, up 7.5% year over year, and rise another 12.1% to $7.39 per share in fiscal 2025.
AAPL stock has a consensus “Moderate Buy” rating overall. Of the 30 analysts covering the stock, 19 advise a “Strong Buy,” three say it’s a “Moderate Buy,” seven recommend a “Hold” rating, and the remaining analyst has a “Strong Sell.”
Even though the stock currently trades above its average analyst price target of $224.09, the Street-high target of $300 from analysts at Loop Capital suggests that the stock could rally as much as 31% from the current levels.
AI Stock #2: Advanced Micro Devices
Commanding a hefty market cap of about $257 billion, Santa Clara-based Advanced Micro Devices, Inc. (AMD) boasts the industry's widest array of cutting-edge high-performance and adaptive processor technologies. From CPUs and GPUs to FPGAs and Adaptive SoCs, AMD's extensive portfolio and software prowess make it a powerhouse in the tech world.
Last month, at the Computex 2024 show, the company unveiled its powerhouse MI325X AI accelerator, which is expected to hit the market in Q4 of fiscal 2024. The chip boasts 288GB of HBM3E memory, and is poised to rival Nvidia.
Shares of this chip giant have soared almost 34.7% over the past 52 weeks, though AMD narrowed its YTD gain to just 8.2% following Wednesday’s heavy selling of semiconductor stocks.
The chip giant announced its Q1 earnings results on April 30, which surpassed Wall Street’s projections on both the top and bottom lines. The company reported a solid $5.5 billion in revenue, marking a 2.2% annual increase. On an adjusted basis, its EPS jumped 3.3% year over year to $0.62. During the quarter, AMD showcased exceptional strength in its Data Center and Client segments, with revenue soaring 80% and 85% year over year, respectively.
This strong growth was driven by a surge in its MI300 AI accelerator shipments and strong Ryzen and EPYC processor adoption, underscoring AMD's strength in AI and processor markets. However, AMD’s gaming segment revenue encountered challenges, falling 48% annually primarily due to a decline in chip sales for game consoles and PCs.
Reflecting on the Q1 performance, CEO Dr. Lisa Su commented, “This is an incredibly exciting time for the industry as widespread deployment of AI is driving demand for significantly more compute across a broad range of markets. We are executing very well as we ramp our data center business and enable AI capabilities across our product portfolio.”
For Q2, management projects revenue of roughly $5.7 billion, with a possible variance of plus or minus $300 million. This forecast indicates an annual growth of about 6% and a sequential growth of around 4%. Additionally, the non-GAAP gross margin is expected to be approximately 53%. The company is slated to announce its Q2 earnings results after the market closes on Tuesday, July 30.
Analysts tracking Advanced Micro Devices expect the company’s profit to reach $2.60 per share in fiscal 2024, up 30.7% year over year, and rise another 68.5% to $4.38 per share in fiscal 2025.
AMD stock has a consensus “Strong Buy” rating overall. Out of the 35 analysts covering the stock, 28 suggest a “Strong Buy,” one recommends a “Moderate Buy,” and the remaining six give a “Hold” rating.
The average analyst price target of $197.78 indicates a potential upside of 24% from the current price levels, while the Street-high price target of $265 suggests that AMD stock could rally as much as 66.2%.
AI Stock #3: Intel Corporation
With a market cap of $146.7 billion, Santa Clara-based Intel Corporation (INTC), a semiconductor giant and leading microprocessor supplier, is making bold moves into data-centric businesses like autonomous driving and AI. While Nvidia dominates the AI accelerator market with over 90% market share, Intel is set to challenge this with its upcoming third-generation Gaudi AI accelerators, expected to hit the market later this year.
At Computex 2024, Intel announced competitive pricing, offering Gaudi chips at a fraction of Nvidia's costs while promising impressive performance. With expanded partnerships and an aggressive pricing strategy, Intel aims to capture market share from Nvidia, setting the stage for a crucial showdown heading into 2025.
Intel stock is down 31.4% on a YTD basis, as the company struggles with ongoing losses amid the launch of its foundry business.
On June 1, Intel paid its shareholders a quarterly dividend of $0.125 per share. The company offers an annualized dividend of $0.50, resulting in an attractive 1.45% dividend yield.
Considering the stock’s underwhelming price action in 2024, INTC stock is clearly a bargain compared to its rival, Nvidia. Priced at 2.71 times sales, the stock trades significantly lower than Nvidia, which trades at 13.92x.
On April 25, Intel reported its Q1 earnings results, which sailed past Wall Street's forecast on the bottom line, even as revenue fell short. The company’s net revenue improved 8.5% year over year to $12.7 billion, while adjusted EPS of $0.18 marked a significant improvement from the adjusted loss per share of $0.04 recorded in the year-ago quarter.
Intel Foundry reported a 10% annual revenue decline to $4.4 billion for the quarter, but Intel's Client Computing segment surged ahead, with chip sales for PCs and laptops reaching $7.5 billion, marking an impressive 31% increase year over year.
Commenting on the Q1 performance, CEO Pat Gelsinger said, “We are confident in our plans to drive sequential growth throughout the year as we accelerate our AI solutions and maintain our relentless focus on execution, operational discipline and shareholder value creation in a dynamic market.”
For fiscal Q2, due out Aug. 1, management anticipates revenue between $12.5 billion and $13.5 billion. Additionally, its non-GAAP EPS and non-GAAP gross margin are projected to be $0.10 and 43.5%, respectively. Analysts tracking Intel Corporation expect the company’s profit to fall to $0.08 per share this fiscal year before recovering to $0.86 in fiscal 2025.
Overall, INTC stock has a consensus “Hold” rating. Of the 34 analysts offering recommendations for the stock, four recommend a “Strong Buy,” two advise a “Moderate Buy,” 25 recommend a “Hold,” and the remaining three give a “Strong Sell” rating.
The average analyst price target of $39.49 indicates a 14.6% potential upside from the current price levels. However, the Street-high price target of $68 suggests expectations for INTC to surge 97% from current levels.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
