AMD and Intel shares have lagged this year. Why a rebound could be in store.

By Emily Bary

Melius Research says AMD, Intel and IBM could see their stocks bounce back after trailing the S&P 500 in the first half

Not all chip stocks enjoyed the exuberant first-half performance seen by Nvidia Corp. (NVDA) - and Melius Research analyst Ben Reitzes thinks some notable laggards could be primed for solid rebounds.

Within the chip sector, he sees potential for shares of Advanced Micro Devices Inc. (AMD) and Intel Corp. (INTC), two recent underperformers that could benefit from an eventual wave of interest in artificial-intelligence personal computers and other hardware trends.

Reitzes noted that Microsoft Corp. delayed a Recall AI feature that would help users remember their past actions on a PC. That function struck him as "the closest thing to a 'killer app' reason to upgrade."

"This feature should eventually be fixed, so AI ready PCs should get going with the Lunar Lake chip from Intel and Strix Point processor from AMD - resulting in a big lift by [the fourth quarter]," he wrote.

See also: Nvidia's stock gets a downgrade as AMD, TSMC shares are deemed top plays

Reitzes also flagged the potential for a rebound in traditional servers on the backs of Intel's Xeon chips and AMD's Turin ones.

"AMD may be the 'cleaner' way to play these cycles since expectations have been lowered for its AI accelerators and it lacks Intel's 'foundry' overhang," he commented in a Monday report. "However, Intel is much more unloved into what could be a seasonal bounce." Intel's stock was one of the S&P 500's SPX biggest first-half losers.

Read: Nvidia is most-owned chip stock in active funds - but another is moving up fast

While the first half saw cloud companies pour huge amounts of money into AI capital expenditures, Reitzes thinks that trend could ease a bit in the second half of the year. In the meantime, consumers and businesses in general "may start preparing more and upgrading hardware to be AI ready," which could benefit AMD, Intel, Apple Inc. (AAPL), Dell Technologies Inc. (DELL) and Amkor Technology Inc. (AMKR), which offers outsourced semiconductor packaging and test services.

Reitzes also sees rebound potential for some pockets of the unloved software sector - namely infrastructure software, which he thinks "may be harder to disrupt." Within that area, he likes shares of International Business Machines Corp. (IBM) The company could see upside within its Red Hat business, in his view, and its consulting business is "also stemming downside from macro pressures by aggressively using AI tools to consolidate seats to help clients lower costs."

More from MarketWatch: Nvidia faces an ever-higher bar. How Morgan Stanley says to play its stock.

-Emily Bary

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07-08-24 0816ET

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