5 Hot Stocks to Buy Now: December's Top Picks With Upside Ahead

Key Concepts

• AI Bubble: Concerns about overvaluation in Artificial Intelligence stocks.
• Overcorrection: Stock prices falling more than justified by underlying fundamentals, creating buying opportunities.
• Rack Scale Capability: Refers to the ability of computing systems to scale efficiently across multiple racks in a data center.
• Custom ASICs/GPUs: Application-Specific Integrated Circuits or Graphics Processing Units designed for particular tasks, rather than general-purpose use.
• GPU as a Service (GaaS): Providing access to GPU computing power on a subscription or on-demand basis.
• Rare Earth Elements: A group of 17 chemical elements with unique properties crucial for many modern technologies, including defense and electronics.
• Vertical Integration: A business strategy where a company controls multiple stages of its supply chain, from raw materials to finished products.
• Drone in a Box: A self-contained system that includes drones, charging infrastructure, and software for autonomous operation.

Stock Picks for December

This segment focuses on Thomas Hughes' top five stock picks for December, with a particular emphasis on the Artificial Intelligence (AI) sector and speculative plays. The overarching theme is that the tech sector, especially AI-related stocks, experienced an overcorrection in November, presenting attractive buying opportunities.

1. Advanced Micro Devices (AMD)

• Main Topic: AMD as a strong contender to gain market share from Nvidia in the AI chip market.
• Key Points:
  • AMD is currently benefiting from the AI boom and showing robust growth.
  • Its full potential will be realized with the release of the MI450 line, which will offer rack-scale capability and be a viable option for hyperscalers.
  • Reasons for hyperscalers to adopt AMD chips include memory performance and cost performance.
  • The stock experienced a ~25% pullback in the last month, attributed to an overshooting of current reality by rapid influx of money, but has found solid support.
  • Analyst price targets suggest a rebound to recent highs (30% upside) and a potential move to $380 (50% upside).
  • Revenue growth is expected to accelerate in the latter half of next year, with further upside potential as the MI450 launch data emerges.
• Technical Terms:
  • MI450 line: A specific product line of AMD's AI accelerators.
  • Rack scale capability: The ability to efficiently manage and deploy computing resources across multiple server racks.
  • Hyperscalers: Large cloud computing providers like Amazon, Microsoft, and Google.
• Supporting Evidence: Analyst price target trends are moving higher, with increasing coverage and firming sentiment. The stock chart shows solid support above critical levels and an open price gap.

2. Broadcom (AVGO)

• Main Topic: Broadcom's emergence as a significant player in the custom AI chip market.
• Key Points:
  • Broadcom is not competing in general-purpose GPUs but is taking share in the custom ASIC and GPU market for large clients like Apple, Meta, and Alphabet.
  • The company focuses on custom solutions for specific AI tasks and workloads.
  • Forecasted double-digit CAGR for the next few years is considered potentially too low due to the increasing need for custom AI solutions.
  • The stock has already seen a strong recovery after a small pullback and is nearing its all-time high.
  • Despite the strong recent performance, the market is breaking out of consolidation, and indicators suggest continued upward movement.
  • Analysts are leading the stock higher, with expectations of solid double-digit upside in the coming months.
• Technical Terms:
  • Custom ASICs: Application-Specific Integrated Circuits designed for a particular function.
• Supporting Evidence: Strong company performance, analyst upgrades, and a breakout from consolidation patterns.

3. Applied Digital (APLD)

• Main Topic: Applied Digital's position as a GPU as a Service (GaaS) provider in a high-demand market.
• Key Points:
  • Applied Digital is a GPU as a Service company offering dedicated capacity and on-demand GPU access.
  • Nvidia's sold-out GPU capacity creates an opportunity for companies like Applied Digital to supply AI-capable GPUs.
  • Recent headlines indicate additional orders for hundreds of gigawatts of capacity, with the company on track to be fully sold out by year-end or early next year.
  • This positions the company for potential expansion with a third or fourth data center campus.
  • The company has transitioned from Bitcoin mining to AI data center infrastructure.
  • Concerns about the significant capital expenditure for data center construction are mitigated by securing contracts before or during construction, thus derisking projects.
  • The company is viewed as a "dual play" with REIT-like qualities but primarily driven by GPU capacity sales.
  • Analyst trends suggest an 80% upside from mid-to-late November support levels.
• Technical Terms:
  • GPU as a Service (GaaS): Providing access to GPU computing power on a subscription or on-demand basis.
  • Gigawatts of capacity: A measure of computing power.
  • REITs (Real Estate Investment Trusts): Companies that own, operate, or finance income-generating real estate.
• Supporting Evidence: Nvidia's supply constraints, secured contracts for capacity, and analyst price targets indicating significant upside.

4. Anduril Holdings (AND)

• Main Topic: Anduril Holdings' emergence as a key player in the AI-powered drone industry.
• Key Points:
  • Anduril is a significant player in the drone industry, with products valued for their capability and cost-effectiveness.
  • Their drones are lighter and cheaper to operate, making them attractive to price-conscious governments.
  • The business outlook is accelerating due to increased orders from existing and new clients, including government contracts.
  • The forecast supports a hyper-growth, triple-digit growth pace, potentially underestimated by analysts.
  • Analyst trends are robust, aligning with the swelling outlook, with expectations of 30-60% stock price appreciation.
  • Anduril's drones are AI-powered and fully autonomous, operating as a "drone in a box" system for surveillance and security.
  • The drone market, including defense stocks, experienced a broad market correction and volatility, particularly for smaller companies with less revenue and profits.
  • The stock has shown strong recent rebound action, rising by 30% recently.
• Technical Terms:
  • Drone in a Box: A self-contained system that includes drones, charging infrastructure, and software for autonomous operation.
  • AI-powered: Utilizing artificial intelligence for autonomous operation and decision-making.
• Supporting Evidence: Increased orders, government contracts, and analyst sentiment and price targets.

5. MP Materials (MP)

• Main Topic: MP Materials as a rare earth element play with government backing and a shift towards vertical integration.
• Key Points:
  • MP Materials is a rare earth producer that has received government investment.
  • The stock experienced a significant surge (quadruple digits) followed by a 50% correction.
  • The stock is showing solid support at critical levels, aligning with previous highs and a key moving average.
  • Analysts are upgrading the stock and raising price targets, citing alignment with national security and forecast for revenue and earnings growth.
  • This is a "buy the dip" opportunity due to the significant pullback.
  • Unlike other rare earth stocks, MP Materials is already in production and has established business operations.
  • The company is transitioning from a pure mining play to a vertically integrated company, moving "from mines to magnets."
  • This vertical integration will involve mining rare earths, processing them, and manufacturing magnets for industrial use, strengthening the US rare earth supply chain, particularly for defense markets.
  • JP Morgan and Goldman Sachs have upgraded the stock, highlighting vertical integration and national security alignment.
• Technical Terms:
  • Rare Earth Elements: A group of 17 chemical elements with unique properties crucial for many modern technologies.
  • Vertical Integration: A business strategy where a company controls multiple stages of its supply chain, from raw materials to finished products.
  • Magnets: Devices that produce magnetic fields, essential for various industrial applications.
• Supporting Evidence: Government investment, analyst upgrades from major firms like JP Morgan and Goldman Sachs, and the company's strategic shift to vertical integration.

Synthesis/Conclusion

The video highlights five compelling stock picks for December, with a strong emphasis on the AI sector and its related infrastructure. Thomas Hughes argues that the recent tech sell-off, particularly in AI stocks, was an overcorrection, creating attractive entry points. Advanced Micro Devices (AMD) is positioned to challenge Nvidia by offering competitive AI chips with its upcoming MI450 line. Broadcom is identified as a key player in the custom AI chip market, serving major tech giants. Applied Digital is presented as a beneficiary of the high demand for GPU as a Service, driven by Nvidia's supply constraints. Anduril Holdings is a speculative play in the AI-powered drone market, offering autonomous surveillance solutions. Finally, MP Materials represents a strategic rare earth play with government backing and a promising shift towards vertical integration, crucial for national security. The overall sentiment is optimistic for these selected stocks, with many showing strong analyst support and potential for significant upside in the coming months and year. The host, Bridget, ultimately chooses AMD for her paper trading watch list due to its interesting dip and potential upside, while acknowledging the appeal of other picks.