AI is booming, providing an important pillar of support for the stock market’s substantial year-to-date gains. Put into numerical terms, the tech-heavy NASDAQ composite index, which features many of the AI sector’s major names, has added nearly 30% for this year to date – on top of the 43% gains it registered last year.
The significance of AI, both as a technological force and an investment opportunity, is underscored by the attention it’s garnering from Wall Street titans – the billionaire investors who’ve made fortunes betting on the right trends.
Steve Cohen, the founder and CEO of Point72, is among them. Drawing parallels between the current AI boom and the tech revolution of the 1990s, Cohen views AI not as a speculative bubble but as a ‘really durable’ phenomenon poised to reshape industries and markets.
More importantly, Cohen is willing to put his money where his mouth is, and is reportedly preparing to set up a new billion-dollar hedge fund to focus on AI stocks. In the meantime, his main firm, Point72, is already betting heavily on AI, and has opened new positions in Advanced Micro Devices (NASDAQ:AMD) and Alphabet (NASDAQ:GOOGL), two of the industry’s leaders.
According to the data from TipRanks, both AMD and GOOGL feature Strong Buy consensus ratings and double-digit upside potential for the coming year. Let’s give them a closer look, and find out just why billionaire investor Steve Cohen is loading up on these two big AI stocks.
Advanced Micro Devices
First up is AMD, a leading innovator in the semiconductor chip industry – and a company that is angling to challenge the chip giant Nvidia for a larger slice of the AI pie. While AMD is not in the same trillion-dollar league as the market leader Nvidia – its market cap of ~$229 billion ranks it sixth among its peers – the company has built up a solid business for itself, putting a wide range of top-end PC processor and AI-capable accelerator chips on the market.
Among AMD’s leading products are several newly announced chips and chipsets, including the Ryzen 7 9800X3D desktop processor, optimized for high-end gaming uses; the Versal Premium Series Gen 2, designed to improve data movement efficiency and to unlock more memory storage in data-intensive markets; and the Instinct MI300A APU, the market’s second exascale accelerator, designed to power the fastest-ever supercomputer. Whatever the immediate application, the common denominator in all of these is AI – AMD’s newest chips have the speed and capacity to handle data-heavy workloads.
That’s by design, of course. AMD has strong relationships, based on its AI-capable chips, with such powerful industry names as Meta, Microsoft, and Oracle. With its new product offerings, AMD is aiming to expand its role in the global AI market, which the data aggregation site Statista estimates will reach $92 billion in total revenue by the end of 2025.
Steve Cohen evidently thinks AMD will be a major player in the field. During Q3, Point72 opened a new position in AMD. The billionaire hedge manager picked up 871,731 shares of the stock, a holding that is worth over $120 million at the current share price.
At the end of last month, AMD reported its results for 3Q24. The company’s quarterly revenue was strong, beating the forecast by $110 million and growing more than 17% year-over-year to reach $6.82 billion. Earnings, reported as a non-GAAP EPS, came to 92 cents per share, in-line with expectations, and up 31% from the prior year.
Despite the gains in earnings, shares in AMD are down 17% since the quarterly results were released. While the results were good, investors were disappointed with the firm’s Q4 guidance, which predicted $7.5 billion at the midpoint to the revenue range, below the $7.55 billion that analysts had expected.
For TD Cowen analyst Joshua Buchalter, however, the decline in share price creates an opening to buy. Buchalter sums up his bullish view of this stock, writing, “We view AMD’s forward roadmap and progress on building its networking ecosystem reinforcing our confidence it can create and capture value in AI computing. Against a very large and still early AI compute TAM, we believe AMD is well on the way to cementing its position as the de facto merchant alternative to NVIDIA’s leadership position.”
The analyst follows this with a Buy rating on the stock, and adds a $185 price target that indicates potential for a 34% gain in the next 12 months. (To watch Buchalter’s track record, click here)
The 30 recent analyst reviews on AMD break down 23-to-7 in favor of Buy over Hold, giving the shares their consensus rating of Strong Buy. The $137.72 trading price and $185.46 average target price together imply a potential one-year upside of 34.5%. (See AMD stock forecast)
Alphabet
Now we’ll turn to Alphabet, the parent company of the internet’s leading search engine, Google, and leading video platform, YouTube. Through these subsidiaries, Alphabet holds the world-leading position in the field of internet search – but more importantly, the company has access to a treasure trove of raw data, the feedstock of AI applications. While the online advertising business based on that data trove has pushed Alphabet to a market cap over $2 trillion, making it the fifth-largest publicly traded firm on Wall Street, it’s the company’s AI bent that is more likely to propel it into the future.
Alphabet already makes use of AI to improve results from its search engines, both Google and YouTube, using the tech to offer search suggestions and to target relevant ads to web surfers. Precise ad targeting is key, as Alphabet’s revenue stream comes mainly from its online advertising segment.
In addition to its uses in web search and digital advertising, AI is essential to Alphabet’s online translation capabilities. AI-powered large language models (LLMs) allow the company to conduct its ad business around the world in the audiences’ native tongues, and to offer automated translation services that expand users’ horizons to websites outside of their native languages.
All of this builds into Alphabet’s Gemini platform, the company’s purpose-built, customer-facing, generative AI platform. Alphabet’s platform is already working with large language models, and can even help users with complex tasks such as computer coding. Alphabet is working to expand Gemini into all of its products – but especially into its Android smartphone operating system. That last will bring a functional AI assistant into the world of smartphone applications, and from there the vistas are endless.
Turning to Steve Cohen’s recent GOOGL buys, we find that he bought big last quarter – to the tune of 1,159,225 shares. At the current price, this new position is worth approximately $196 million.
In its last quarterly report, for 3Q24, Alphabet’s management stated that the company saw strong success in its core revenue-driving business of online advertising. The company’s ~90% market share in online search provides a strong foundation for the digital ad business. Alphabet’s revenues in the third quarter came to $88.3 billion, growing almost 15% year-over-year and beating the forecast by $2.05 billion. The company’s EPS was also strong, up 37% year-over-year to reach $2.12 per share – and beating the forecast by 27 cents per share.
In coverage for Pivotal Research Group, analyst Jeffrey Wlodarczak takes note of Alphabet’s leading position in online search and advertising, as well as the company’s strong business lines in AI and cloud computing. He writes of the internet giant, “If the status quo holds, GOOG appears to be in a very strong competitive position with a deep moat around their dominant core search business model (~90% market share ex China) and an obvious path to leverage 90%+ (ex China) global device presence (which we believe will dominate consumer AI assistant use), a strong AI platform and financial might to increase financial incentives to handset manufacturers for default AI placement. GOOG also holds a strong #3 position in cloud computing, which as evidenced by the 3Q acceleration in revenue growth has dramatic growth potential given still relatively low (15-20%) cloud market share of enterprise workloads (+ benefits from AI), controls the largest video/audio streaming platform in the world (YouTube) and the world’s top browser (Chrome) with a 65% global market share (ex-China).”
Looking ahead, Wlodarczak puts a Buy rating on GOOGL shares, with a $225 price target that implies a one-year upside potential of 33%. (To watch Wlodarczak’s track record, click here)
The Strong Buy consensus rating on Alphabet is based on 34 recent Wall Street reviews that favor Buy over Hold by 27 to 7. The shares are priced at $169.12 and the $207.9 average price target points toward a 23% gain in the year ahead. (See GOOGL stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
