AI is booming and is a key pillar of the stock market’s substantial gains this year. In numerical terms, the NASDAQ composite index, which includes many of the AI sector’s big names, has added almost 30% so far this year – on top of the 43% gain it posted last year.
The importance of AI, both as a technological force and as an investment opportunity, is underscored by the attention it is receiving from Wall Street titans – the billionaire investors who have made fortunes by betting on the right trends.
Steve Cohen, the founder and CEO of Point72, is one of them. Drawing parallels between the current AI boom and the technological revolution of the 1990s, Cohen sees AI not as a speculative bubble, but as a “truly sustainable” phenomenon poised to reshape industries and markets.
More importantly, Cohen is ready to put his money where his mouth is, and is reportedly preparing to set up a new multi-billion dollar hedge fund that will focus on AI stocks. In the meantime, his flagship company, Point72, is already betting heavily on AI, opening new positions in Advanced Micro Devices (NASDAQ:AMD) and Alphabet (NASDAQ:GOOGL), two of the market leaders.
According to TipRanks data, both AMD and GOOGL have Strong Buy consensus ratings and double-digit upside potential for the year ahead. Let’s take a closer look and find out why billionaire investor Steve Cohen is piling into these two big AI stocks.
Advanced micro devices
The first is AMD, a leading innovator in the semiconductor chip industry – and a company looking to challenge chip giant Nvidia for a bigger share of the AI pie. While AMD isn’t in the same trillion-dollar league as market leader Nvidia (with a market cap of ~$229 billion, it ranks sixth among its peers) the company has built a solid business for itself, with a wide range of top-end products. PC processor and AI-enabled accelerator chips on the market.
AMD’s leading products include several newly announced chips and chipsets, including the Ryzen 7 9800X3D desktop processor, optimized for high-end gaming use; the Versal Premium Series Gen 2, designed to improve data movement efficiency and unlock more memory storage in data-intensive markets; and the Instinct MI300A APU, the market’s second exascale accelerator, designed to power the fastest supercomputer ever. Whatever the immediate application, the common denominator in all of this is AI: AMD’s latest chips have the speed and capacity to handle data-heavy workloads.
Of course, that’s by design. Based on its AI-enabled chips, AMD has strong relationships with powerful industry names like Meta, Microsoft and Oracle. With its new product offering, AMD aims to expand its role in the global AI market, which will reach a total revenue of $92 billion by the end of 2025, according to data aggregation site Statista.
Steve Cohen apparently thinks AMD will be a major player in this area. During the third quarter, Point72 opened a new position in AMD. The billionaire hedge manager has snapped up 871,731 shares, an asset worth more than $120 million at the current share price.
Late last month, AMD reported its Q3 24 results. The company’s quarterly revenue was strong, exceeding forecasts by $110 million and growing more than 17% year over year to $6.82 billion. Earnings, reported as non-GAAP earnings per share, were 92 cents per share, in line with expectations, and 31% higher than the prior year.
Despite the profit gains, AMD shares have fallen 17% since reporting quarterly results. While the results were good, investors were disappointed with the company’s fourth-quarter guidance, which forecast $7.5 billion at the midpoint of the revenue range, below the $7.55 billion analysts had expected.
For TD Cowen analyst Joshua Buchalter, however, the share price drop creates an opening to buy. Buchalter summarizes his bullish view on the stock by writing: “We view AMD’s future roadmap and progress in building its networking ecosystem, which reinforces our confidence that it can create and capture value in AI computing. Facing a very large and early stage AI compute TAM, we believe AMD is well on its way to cementing its position as the de facto trading alternative to NVIDIA’s leadership position.”
The analyst follows this up with a buy rating on the stock and adds a $185 price target, indicating potential for a 34% gain over the next twelve months. (To view Buchalter’s track record, click here)
The 30 recent analyst reviews on AMD give it a score of 23-7 in favor of Buy over Hold, giving the stock its consensus rating of Strong Buy. The trading price of $137.72 and the average target price of $185.46 together imply a potential one-year upside of 34.5%. (To see AMD Stock Prediction)
Now we turn to Alphabet, the parent company of the Internet’s leading search engine, Google, and the leading video platform YouTube. Through these subsidiaries, Alphabet holds the leading position in Internet search. But more importantly: the company has access to a wealth of raw data, the raw material for AI applications. While the online advertising industry has pushed Alphabet to a market cap of more than $2 trillion based on that data trove, making it the fifth-largest publicly traded company on Wall Street, it’s more likely that the company’s AI slant will move into the future will push.
Alphabet already uses AI to improve the results of its search engines, both Google and YouTube, using the technology to provide search suggestions and target relevant ads to web surfers. Accurate ad targeting is critical as Alphabet’s revenue stream comes primarily from the online advertising segment.
In addition to its use in internet searches and digital advertising, AI is essential to Alphabet’s online translation capabilities. AI-powered large language models (LLMs) allow the company to run its advertising operations around the world in the audience’s native language, and provide automated translation services that broaden users’ horizons to websites outside their native language.
All of this is integrated into Alphabet’s Gemini platform, the company’s purpose-built, customer-centric, generative AI platform. Alphabet’s platform already works with large language models and can even help users with complex tasks such as computer coding. Alphabet is working to expand Gemini to all its products, but especially to the operating system for Android smartphones. The latter will bring a functional AI assistant into the world of smartphone applications, and from there the vistas are endless.
If we look at Steve Cohen’s recent GOOGL purchases, we see that he bought large shares this past quarter – to the tune of 1,159,225 shares. At today’s price, this new position is worth approximately $196 million.
In its latest quarterly report, for Q3 24, Alphabet management stated that the company was achieving great success in its revenue-driven core business of online advertising. The company’s online search market share of ~90% provides a strong foundation for the digital advertising sector. Alphabet’s third quarter revenue was $88.3 billion, up nearly 15% year over year and beating forecasts by $2.05 billion. The company’s earnings per share were also strong, up 37% year over year to $2.12 per share – beating forecasts by 27 cents per share.
In his coverage of Pivotal Research Group, analyst Jeffrey Wlodarczak notes Alphabet’s leading position in online search and advertising, as well as the company’s strong business 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 outside of China) and an obvious path to leverage creating Over 90% (ex China) global device presence (which we believe will dominate consumer use of AI assistants), a strong AI platform and financial power to drive financial incentives for mobile phone makers for standard Increase AI placement. GOOG also has a strong #3 position in cloud computing, evidenced by the acceleration of revenue growth in the third quarter and has dramatic growth potential given the still relatively low (15-20%) cloud market share of enterprise workloads ( + benefits of AI), controls the world’s largest video/audio streaming platform (YouTube) and the world’s best browser (Chrome) with a 65% global market share (ex-China).”
Looking ahead, Wlodarczak gives a Buy rating to GOOGL stock, with a $225 price target implying 33% one-year upside potential. (To view Wlodarczak’s track record, click here)
The Strong Buy consensus rating on Alphabet is based on 34 recent Wall Street reviews favoring Buy over Hold by a 27-to-7 margin. Shares are priced at $169.12 and the average price target of $207.9 points to a 23% gain in the coming year. (To see GOOGL Stock Prediction)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.
