Top Stocks of the Week - August 26, 2024

As we navigate through a dynamic market environment, several stocks have caught the attention of investors and analysts alike. This week, we're focusing on three standout performers: Advanced Micro Devices ($AMD(AMD)), SoFi Technologies ($SOFI(SOFI)), and Nike ($NKE(NKE)). Each of these companies presents unique opportunities and challenges in the current economic landscape.

Before diving into our top picks, it's worth noting that the Dow Jones Industrial Average recently reached a record high, signaling a potential shift in market sentiment. Traders are anticipating Federal Reserve rate cuts on the horizon, which could significantly impact various sectors of the market.

Additions

There are three new additions to the Top 10 this week: AMD, SOFI, NKE

1. Advanced Micro Devices (AMD)

Advanced Micro Devices has been making waves in the semiconductor industry, particularly in the data center and AI space. Here's why AMD is our top pick this week:

Key Highlights:

• Recent acquisition of ZT Systems for $4.9 billion

• Strong performance in Data Center segment with 115% year-over-year growth

• Launch of Zen 5 products for notebooks and desktops

• Attractive valuation at 10.90x trailing price/sales compared to peers

AMD's strategic acquisitions of ZT Systems and Silo AI are positioning the company as a full-stack data center design enabler. These moves are expected to accelerate AMD's growth across multiple verticals and enhance their competitive edge against rivals like Nvidia.



The company's Data Center revenue growth of 115% year-over-year is particularly impressive, driven by strong sales of their Instinct and EPYC GPUs and CPUs. With the anticipated ramp-up of MI300 chip production and the upcoming launch of MI325 and MI350 series GPUs, AMD is well-positioned to capitalize on the growing demand for AI and machine learning solutions.

At its current valuation of 10.90x trailing price/sales, AMD appears undervalued compared to its peers, especially considering its growth trajectory. Our price target for AMD is $225 per share, representing significant upside potential.

2. SoFi Technologies (SOFI)

SoFi Technologies, a fintech disruptor, has been flying under the radar despite impressive growth metrics and improving profitability. Here's why we're bullish on SOFI:

Key Highlights:

• Significant member surge with 643,000 new members in Q2

• Robust growth in financial services segment, up 80% year-over-year

• Consecutive raises in 2024 guidance for adjusted EBITDA and net revenues

• Attractive valuation at 2.6x 2025 estimated sales

SoFi's member growth has been nothing short of explosive, with the company doubling its member base in just two years to reach 8.8 million. This rapid expansion is a testament to the strength of SoFi's banking platform and its ability to attract new customers.



The company's financial services segment has been a key driver of growth, with net revenue skyrocketing 80% year-over-year to $176.1 million in Q2. This shift towards financial services and technology products is improving SoFi's revenue mix and profitability profile.

SoFi's recent guidance raises for 2024, projecting 17-19% year-over-year growth in adjusted net revenues and 25% growth in adjusted EBITDA, demonstrate management's confidence in the company's trajectory.

At 2.6x 2025 estimated sales, SoFi appears undervalued compared to its growth potential. We believe the stock has room for multiple expansion as the company continues to execute on its growth strategy.

3. Nike (NKE)

While facing some near-term headwinds, Nike remains a global leader in athletic footwear and apparel. Here's our take on NKE:

Key Highlights:

• Introduction of innovative Air Max Dn product range

• Strong international presence with 58% of revenue from non-US markets

• Attractive valuation at 24.75% discount from its 5-year average PE ratio

• Long-term growth potential in digital sales and emerging markets

Nike's focus on innovation continues with the launch of the Air Max Dn featuring Dynamic Air technology. This showcases the company's ability to bring new products to market quickly and maintain its leadership in performance footwear.



The company's global brand strength and international market penetration provide a solid foundation for long-term growth. With 58% of revenue coming from non-US markets in FY24, Nike is well-positioned to capitalize on emerging market opportunities.

While facing near-term challenges such as excess inventory and changing consumer preferences, Nike's management has implemented cost-cutting measures and is adapting its product lineup to meet evolving market demands.

Trading at a 24.75% discount from its 5-year average PE ratio, Nike presents an attractive entry point for long-term investors. The company's strong brand, innovation pipeline, and potential for margin improvement make it a compelling choice for patient investors willing to weather short-term volatility.

Deletions

There are several deletions this week: SMCI, META, PDD

Conclusion

As we navigate through a complex market environment, AMD, SoFi, and Nike stand out as top picks for investors with varying risk appetites and investment horizons. AMD offers exposure to the high-growth AI and data center markets, SoFi presents an opportunity in the rapidly evolving fintech space, and Nike provides a blend of brand strength and long-term growth potential in the athletic apparel industry.

While each of these stocks comes with its own set of risks and challenges, we believe they offer attractive risk-reward profiles at their current valuations. As always, investors should conduct their own due diligence and consider their individual investment goals before making any investment decisions.