Key Concepts
- AI Trade: The investment trend focused on companies involved in Artificial Intelligence development and application. Despite recent headlines, the analyst believes this trend is continuing.
- HBM (High Bandwidth Memory): A type of memory crucial for AI applications, particularly in GPUs. Micron is a key player in this market.
- RPO (Remaining Performance Obligation): A metric used by Oracle indicating future revenue from contracts, serving as a leading indicator of growth.
- Agentic AI: The application of AI to create automated solutions and improve business processes. Salesforce is positioned to benefit from this.
- Rack Scale Solution: A data center infrastructure approach where computing resources are scaled at the rack level, allowing for greater efficiency and scalability. MI450 from AMD is a rack scale solution.
- CAGR (Compound Annual Growth Rate): The average annual growth rate of an investment over a specified period. Salesforce is forecasting a double-digit CAGR.
Stock Picks for January: A Contrarian View on the AI Market
This segment features Market Beat analyst Thomas Hughes discussing his top five stock picks for January, framed within a contrarian perspective on the current market sentiment surrounding the AI sector. Hughes argues that recent market weakness, particularly in December, presents a buying opportunity, dismissing headlines suggesting an “AI bubble burst.” He emphasizes continued investment flow, positive analyst outlooks, and institutional buying as evidence of the AI trade’s ongoing strength.
1. Advanced Micro Devices (AMD) – Positioned for a Game-Changing Launch
Hughes’ first pick is AMD, citing its strong positioning for the coming year, specifically tied to the launch of its MI450 line in the fiscal third quarter. This launch is significant because MI450 represents AMD’s entry into the rack scale solution market, previously dominated by Nvidia.
- Technical Detail: The MI450 line will allow AMD to compete with Nvidia in providing hyperscale quality solutions to large data center companies like Google, Amazon, Microsoft, and Oracle.
- Demand & Supply: Hughes notes that demand for GPUs currently exceeds supply by a ratio of 10:1, suggesting AMD can sell all it produces without impacting Nvidia’s market share.
- Timeline: The MI450 launch is expected to be reflected in AMD’s results in the fiscal third quarter, with anticipation of positive market sentiment building in January and the first quarter.
- Chart Analysis: Hughes believes the recent price pullback is profit-taking and finds support at critical levels aligned with prior highs, indicating a potential launchpad for higher prices.
2. Micron – Affirming the AI Trade’s Continued Strength
Micron’s recent December report is highlighted as a strong indicator that the AI bubble has not burst. The report demonstrated outperformance in both top and bottom lines, significant margin improvement, and guidance exceeding expectations by several hundred basis points.
- HBM Demand: This performance is directly linked to the surging demand for HBM (High Bandwidth Memory), essential for GPUs from both Nvidia and the upcoming AMD MI450.
- Supply Shortages: Micron reports record results across all segments, particularly in data centers, cloud, and AI, but faces significant supply constraints for HBM, impacting automotive and mobile markets as well.
- Pricing Power: The HBM shortage is driving price increases, with one competitor raising prices by 60%. Shortages are expected to persist into 2027, supporting Micron’s growth and profitability.
- Competitive Landscape: Micron’s HBM product is considered superior in capacity and performance, and the company can currently sell all it produces due to high demand.
- Guidance: Micron’s guidance for the coming quarter is $18.4 billion in revenue, exceeding expectations by $4 billion, representing a 2,700 basis point increase.
3. Oracle – A Contrarian Play with Significant Upside
Oracle is presented as a contrarian pick due to recent market pressure and volatility. Despite a weaker-than-expected report, Hughes emphasizes the strength of Oracle’s RPO (Remaining Performance Obligation), which grew by 450% in the last report.
- RPO as a Leading Indicator: The substantial growth in RPO signals accelerating future revenue growth.
- Data Center Expansion: Oracle is doubling its data center footprint, with revenue recognition tied to these facilities coming online.
- AI Ecosystem Role: Oracle is positioned as a critical infrastructure provider and is embedding AI throughout its product stack, offering a “one-stop AI shop” with chip neutrality (supporting AMD, Nvidia, and Broadcom chips).
- Long-Term Growth: The company anticipates long-term contracts and sustained growth through both new client acquisition and increased service adoption by existing clients.
- Volatility & Support: Hughes acknowledges ongoing volatility but believes the downside is limited, presenting a good buying opportunity.
4. Apple – Waiting for the AI Catalyst
Apple is included as a potential beneficiary of the AI trend, despite being perceived as lagging in AI development. The key catalyst for Apple will be its strategy and implementation of AI within its products and services.
- Current Strength: Despite AI concerns, Apple maintains strong iPhone sales and growing margins.
- Quiet Development: Hughes suggests Apple is developing AI solutions quietly, aiming for a polished and complete product launch.
- Market Leadership: Apple’s historical success and reputation for quality position it to potentially dominate the AI market upon entry.
- January Outlook: Hughes anticipates a potential rally in January, driven by consolidation and investor positioning.
5. Salesforce – Benefiting from Agentic AI
Salesforce is highlighted as a leader in agentic AI – the application of AI to automate business processes. The company is experiencing reaccelerating growth and forecasting a double-digit CAGR (Compound Annual Growth Rate).
- AI-Driven Growth: Salesforce’s growth is driven by its ability to leverage AI to improve business outcomes for its clients.
- Margin Improvement: AI is expected to not only drive revenue growth but also sustain margin improvement.
- Chart Analysis: Hughes observes a rally and consolidation pattern in Salesforce’s chart, indicating a potential bullish bias.
- Shift to Blue Chip: Salesforce is transitioning from a pure growth story to a more established tech company with dividends and share buybacks.
Synthesis & Conclusion
Hughes’ analysis presents a contrarian yet optimistic view of the AI market. He argues that recent market corrections are temporary and represent buying opportunities, particularly in companies like AMD, Micron, Oracle, Apple, and Salesforce. His picks are grounded in specific product launches (AMD’s MI450), strong financial performance (Micron’s report), leading indicators (Oracle’s RPO), and strategic positioning (Salesforce’s agentic AI). The core takeaway is that despite short-term volatility, the underlying fundamentals of the AI trade remain strong, and investors should focus on companies poised to benefit from the long-term growth potential of this transformative technology. He emphasizes the importance of understanding the technical details and market dynamics driving these companies, rather than reacting solely to headline news.
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