Is Advanced Micro Devices, Inc. (AMD) the Best Augmented Reality Stock to Buy Now?

We recently compiled a list of the 10 Best Augmented Reality Stocks To Buy Now. In this article, we are going to take a look at where Advanced Micro Devices, Inc. (NASDAQ:AMD) stands against the other augmented reality stocks.

Augmented reality (AR) is a technology that enhances our perception of the real world by overlaying digital elements through devices, adding to your existing environment. There are various ways to describe AR, from spatial computing to holographic projection, but its practical applications define its true value. A notable example of an AR device is the HoloLens, a holographic computer that enables users to interact with digital content within the real world, leading to its growing adoption across various industries such as education, manufacturing, and healthcare.

AR/VR Startups

Despite its applications and prospective growth, the AR space seems to have lost favor with venture capitalists, with investments declining due to disappointing adoption rates for the gear and leading metaverse platforms. Even the launch of the Vision Pro headset earlier this year, promoted as a "spatial computing" device, didn't significantly shift the mood. Reports suggest that demand for the $3,500 device is cooling, prompting the maker to lower its shipment forecast.

Similarly, the investment climate in the startup sector remains cold, with only about $464 million invested this year in seed through growth-stage funding for AR, VR, and metaverse-related companies. This sets 2024 on course to reach the lowest funding total in years. Most startups that raised large financings during the peak in 2021 haven't secured new rounds since. However, despite the slowdown, some notable deals have still occurred, with the largest AR-related round this year going to Rokid, a maker of augmented reality glasses, which raised $70 million in January. Another notable investment was in Beijing-based Xreal, a mixed-reality glasses maker that  positions itself as a more affordable alternative to the Quest and Vision Pro, which raised $60 million in January at a $1 billion valuation.

Most notably, Google recently partnered with augmented reality startup Magic Leap in a strategic technology deal, hinting that the tech giant may be preparing to re-enter the AR and VR market, a space it has mostly left to rivals. Over a decade ago, the search engine giant was a trailblazer in AR. This enthusiasm peaked during a 2012 demo where skydivers used the glasses to live stream a jump onto a building in San Francisco. However, the product faced significant consumer pushback due to its awkward design and privacy concerns.

Augmented Reality Market & Outlook

The global augmented reality market, valued at $32.1 billion in 2022, is projected to grow from $42.85 billion in 2023 to $432.35 billion by 2031, with a compound annual growth rate (CAGR) of 33.5% over the forecast period, according to industry data from SkyQuest.

A significant portion of the market is mobile AR, leveraging the widespread ownership of smartphones, tablets, and other mobile devices. As of this year, it's projected that there will be 1.7 billion devices capable of supporting mobile AR. Notably, a key advantage mobile AR enjoys is the massive existing smartphone user base. Unlike the steep challenges AR glasses face, mobile AR benefits from "zero-cost" hardware, making its path to adoption relatively smoother. Growth is expected across both enterprise and consumer segments, including digital AR experiences. A well-known example is the 2016 video game Pokémon GO, where players explore their surroundings to find virtual characters on their phones. Additionally, collaborations between key market players and 5G providers to address latency issues are expected to fuel market growth.

Our Methodology

In this article, we reviewed online rankings and ETFs to determine 20 companies operating in the AR space. We then selected the 10 stocks that were the most popular among elite hedge funds. We sourced the hedge fund data from Insider Monkey's database of 912 hedge funds, as of Q2 2024. Our focus was on companies that produce AR-related hardware, software, or technologies used in developing augmented reality products. However, we also included companies that offer services essential to the AR industry, like semiconductor chips.

At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A close up of a complex looking PCB board with several intergrated semiconductor parts.

Advanced Micro Devices, Inc. (NASDAQ:AMD)

Number of Hedge Fund Holders: 108

Based in Santa Clara, California, Advanced Micro Devices, Inc. (NASDAQ:NASDAQ) is a leading global semiconductor company known for developing computer processors and related technologies for both business and consumer markets. AMD plays a crucial role in the AR industry by providing chips that power immersive experiences in various AR and VR devices.

AMD's market share in discrete graphics continues to grow, and the company's share of the server processor market is expected to surpass the current 25%. With the upcoming release of the next-generation Instinct GPU product line, including the MI325X expected in Q4 2024, and the Zen 5 architecture promising significant IPC improvements, AMD is well-positioned to maintain its competitive advantage. Additionally, on July 10, the company's shares rose over 3% following the announcement of an agreement to acquire Silo AI, the largest private AI lab in Europe, in an all-cash transaction valued at approximately $665 million. This acquisition aligns with AMD’s strategy to offer comprehensive AI solutions based on open standards.

Moreover, Advanced Micro Devices, Inc. (NASDAQ:AMD) remains a formidable player in the semiconductor industry, with New Street Research maintaining a Buy rating on the stock, setting a one-year target price at $235 and a long-term target for 2026 at $345. The optimistic outlook is supported by AMD's consistent revenue growth and market share expansion in the datacenter GPU segment. Additionally, Citi Research raised its price target from $176 to $210, reflecting a positive view of AMD's AI sales and PC CPU business.

In the second quarter of 2024, 108 hedge funds tracked by Insider Monkey held stakes in Advanced Micro Devices, Inc. (NASDAQ:AMD), with the largest stake held by Ken Fisher’s Fisher Asset Management, valued at $3.75 billion.

Meridian Contrarian Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth quarter 2023 investor letter:

“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chip maker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which accelerate operations running on CPUs. We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to lagging technology and lost market hi share versus competitors Intel and Nvidia. Our research identified that changes and investments made by current management under CEO Lisa Su had, over several years, finally resulted in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested on the the belief that AMD’s valuation at that that time did not reflect the potential for its technology leadership to generate significant market share gains and improved profits. This thesis has been playing out for several years. During the quarter, AMD unveiled more details about its upcoming GPU products for the AI market. The stock reacted positively to expectations that AMD’s GPU servers will be a viable alternative to Nvidia. Although we pared back our exposure to AMD into strength as part of our risk-management practice, we maintained a position in the stock. We believe AMD will continue to gain share in large and growing markets and is reasonably valued relative to the potential for significantly higher earnings.”

Overall AMD ranks 5th on our list of the best augmented reality stocks to buy. While we acknowledge the potential of AMD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.