So far, the equity market has proven more resilient than many had expected in 2023. For instance, major indices like the S&P 500 Index ($SPX) and the Nasdaq 100 Index ($IUXX) have gained 16% and 37%, respectively, on a year-to-date basis. Further, easing inflation suggests that interest rates will soon stabilize and return to normal. This provides a solid underpinning for growth in the coming quarters - and suggests the recent dip in stocks could be a prime buying opportunity.
For investors looking to add equity exposure this August, Advanced Micro Devices (AMD), Axon Enterprise (AXON), and SolarEdge Technologies (SEDG) all appear to be solid bets near current levels. These stocks offer appealing growth prospects, and Wall Street analysts maintain a favorable outlook on all three.
Against this backdrop, let’s look at the factors that make these stocks a Buy right now.
Advanced Micro Devices
Shares of Advanced Micro Devices have gained over 66% year-to-date, easily outperforming the major market averages. Despite the robust appreciation in the share price, acceleration in the Data Center segment and AI (Artificial Intelligence) opportunities suggest further upside is in store for this chip stock.
Given macro headwinds and lower enterprise spending at the start of the year, AMD's Data Center revenues remained low in the first half of 2023. However, acceleration in the adoption of its 4th Generation EPYC CPU should drive the segment’s growth in the second half (revenues nearly doubled in Q2 on a sequential basis). In addition, the earlier shipment of its Instinct MI300 accelerators in the fourth quarter will further support the segment’s growth.
While the recovery in Data Center revenues is positive, AI presents a multibillion-dollar growth opportunity for the company. During the Q2 conference call, AMD’s management highlighted that the market for AI accelerators in Data Centers alone could reach over $150 billion by 2027.
Beyond Data Centers, the company sees solid opportunities in other segments, as well. AMD has increased its AI-related R&D and go-to-market investments, which will enable it to capture a considerable share of this rapidly expanding market.
The company is well-positioned to benefit from the recovery in Data Center and AI advancements. However, weakness in the Gaming and Embedded segments could be a short-term drag on its financials.
Nonetheless, most analysts covering AMD stock remain optimistic about its prospects. Out of the 28 analysts covering AMD, 21 have a “Strong Buy” recommendation, one analyst recommends a “Moderate Buy,” and six maintain a “Hold” rating.
The average price target for AMD is $141.03, implying expected upside of about 31% from current levels.
Axon Enterprise
Axon provides public safety operating systems for modern policing by integrating hardware devices and cloud software solutions. Its products and services include TASER energy devices, body and in-car cameras, cloud-hosted digital evidence management solutions, and productivity software.
The company is benefiting from robust demand for its products, with Axon Cloud & Services maintaining strong momentum to drive both net revenue retention (up to 122% in the latest quarter) and annual recurring revenues. The company recently launched TASER 10, which marks a generational advancement in TASER technology. The product has garnered solid feedback and provides a multi-year growth opportunity for the company in the TASER segment.
Within the Cloud and Services segment, digital evidence management remains its core SaaS (software-as-a-service) offering. All its products are sold with subscriptions to its digital evidence management platform. This supports both Axon's enterprise software licenses and the cloud business.
The company has been deploying AI in its products since 2017. AI already powers Axon's transcription, automated license plate recognition, and video redaction products. Further, Axon remains upbeat that its AI-enabled tools will help expand its lead against competitors and drive growth.
Overall, the solid demand for Axon's products, strength in the Cloud and Services segment, high customer retention rate, and solid annual recurring revenue (up 52% in Q2 to $559 million) support my bull case.
Wall Street is also bullish about AXON. The stock has received eight “Strong Buy” recommendations and two “Moderate Buy” ratings. The average price target for AXON stock is $240.30, implying expected upside of about 15% from current levels.
SolarEdge Technologies
SolarEdge provides smart energy technology, offering residential solar inverters that maximize power generation and lower the energy cost produced by the photovoltaic (PV) system. In addition, the company provides power optimizers and a cloud-based monitoring platform. Further, SolarEdge serves a broad range of markets, including energy storage, EV (Electric Vehicle) charging and powertrains, batteries, and grid services solutions.
SolarEdge has underperformed the broader market and is down over 37% year-to-date, pressured by higher interest rates and a new net metering policy that has led to a decrease in demand. At the same time, excess inventory remains a short-term drag and could hurt shipments.
While the company faces headwinds in the near term, its PV system and products position it well to capitalize on the growing adoption of renewable energy, making it a solid long-term bet. Going forward, SolarEdge should benefit from an increase in third-party ownership installations. Also, lower module prices and increased project executions will support its growth in the commercial market. In addition, the ramp-up in deliveries of its new three-phase residential backup inverter will help rebalance existing inventory issues.
Analysts are optimistic about SEDG. Out of the 21 analysts covering the stock, 16 have a “Strong Buy” recommendation, one analyst recommends a “Moderate Buy,” and four maintain a “Hold” rating.
Plus, the average price target for SEDG stock is $327, implying a massive upside potential of 84% from current levels.
Thanks to its share price underperformance so far this year, SolarEdge stock is trading at relatively cheap levels, providing a solid entry point for investors. Further, its strong growth prospects - underpinned by policy support for alternative energy - keep me bullish on the stock.
On the date of publication, Sneha Nahata 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.
