AI is growing rapidly and has been a key pillar behind the stock market’s significant rally since the beginning of the year. In terms of numbers, the tech-heavy Nasdaq Composite Index, which includes many of the major stocks in the AI sector, is up nearly 30% so far this year, on top of the 43% gain recorded last year.
The importance of AI as both a technological force and an investment opportunity is underscored by the attention it is receiving from Wall Street giants, billionaire investors who made their fortunes by betting on the right trends. has been.
Steve Cohen, founder and CEO of Point72, is one of them. Comparing the current AI boom to the technology revolution of the 1990s, Cohen sees 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, reportedly preparing to launch a new $1 billion hedge fund to focus on AI stocks. . Meanwhile, his flagship company Point72 is already betting big on AI, opening new positions in two industry leaders, Advanced Micro Devices (NASDAQ: AMD) and Alphabet (NASDAQ: GOOGL). did.
According to TipRanks data, AMD and GOOGL both feature “Strong Buy” consensus ratings and double-digit upside potential next year. Let’s take a closer look at them and see why billionaire investor Steve Cohen is investing in these two big AI stocks.
advanced micro device
First, AMD is a leading innovator in the semiconductor chip industry and a company looking to challenge chip giant Nvidia for a bigger piece of the AI pie. AMD isn’t as trillion-dollar as market leader Nvidia, ranking sixth among its peers with a market capitalization of about $229 billion, but the company has built a solid business for itself. We offer a wide range of top-end products. PC processors and AI-enabled accelerator chips are commercially available.
Among AMD’s flagship products are several newly announced chips and chipsets, including the Ryzen 7 9800X3D desktop processor, which is optimized for high-end gaming applications. Versal Premium Series Gen 2 is designed to improve data movement efficiency and enable more memory storage in data-intensive markets. The Instinct MI300A APU is the second exascale accelerator on the market and is designed to power the fastest supercomputers in history. Whatever the application at hand, the common denominator in all of these is AI. AMD’s latest chips have the speed and capacity to handle data-intensive workloads.
Of course, that’s by design. AMD has strong relationships with powerful industry names such as Meta, Microsoft, and Oracle based on its AI-enabled chips. AMD aims to expand its role in the global AI market with new product offerings, with total revenue expected to reach $92 billion by the end of 2025, data aggregator Statista estimates.
Steve Cohen seems to think AMD will be a major player in this space. During the third quarter, Point72 opened a new position in AMD. The billionaire hedge manager acquired 871,731 shares worth more than $120 million at the current share price.
Late last month, AMD reported its financial results for the third quarter of 2024. The company had strong quarterly sales, beating expectations by $110 million and increasing more than 17% year over year to $6.82 billion. Earnings reported as non-GAAP EPS were 92 cents per share, in line with expectations and up 31% year over year.
Despite the increase in profits, AMD stock has fallen 17% since the quarterly results were released. Although the results were positive, investors were disappointed by fourth-quarter guidance that predicted revenue of $7.5 billion at the midpoint of the range, below analysts’ expectations of $7.55 billion.
But for TD Cowen analyst Joshua Buchalter, the drop in stock prices creates buying opportunity. Buchalter summarizes his bullish view on the stock, writing: We believe AMD is establishing itself as the de facto merchant, replacing NVIDIA’s leadership position for the very large and still nascent AI computing TAM. ”
Following this, the analyst rated the stock a Buy and added a price target of $185, indicating a potential upside of 34% over the next 12 months. (Click here to see Buchalter’s track record)
A recent review of 30 analysts on AMD gives the stock a consensus rating of Strong Buy, with a 23-7 vote favoring Buy over Hold. The trading price of $137.72 and average target price of $185.46 combine for a one-year upside potential of 34.5%. (look AMD stock price prediction)
alphabet
Now let’s turn to Alphabet, the parent company of Google, the Internet’s major search engine, and YouTube, the major video platform. Through these subsidiaries, Alphabet maintains a world-leading position in Internet search, but more importantly, it gives the company access to a treasure trove of raw data that is the raw material for AI applications. Its data-based online advertising business has given Alphabet a market capitalization of more than $2 trillion, making it the fifth-largest publicly traded company on Wall Street, but what’s more likely to propel it into the future is its It is a commitment to AI.
Alphabet already uses AI to improve results from both its Google and YouTube search engines, using the technology to provide search suggestions and target relevant ads to web surfers. I am. Alphabet’s main source of revenue comes from the online advertising segment, so accurate targeting of ads is important.
In addition to its use in web search and digital advertising, AI is also integral to Alphabet’s online translation capabilities. AI-powered large-scale language models (LLMs) enable the company to advertise globally in viewers’ native languages, offering automatic translation services that expand users’ horizons to non-native websites. Now you can.
All of this is built into Alphabet’s Gemini platform, a purpose-built generative AI platform for Alphabet customers. Alphabet’s platform already supports large language models and can assist users with complex tasks such as computer coding. Alphabet is working on extending Gemini to all of its products, but specifically to the Android smartphone operating system. Finally, we bring a functional AI assistant to the world of smartphone applications, and the possibilities are endless from there.
If we take a look at Steve Cohen’s recent purchases of GOOGL stock, we can see that he bought a large amount of stock amounting to 1,159,225 shares in the last quarter. At current prices, this new position is worth approximately $196 million.
In its last quarterly report for Q3 2024, Alphabet’s management said the company is seeing great success in its core revenue-driving business, online advertising. The company’s ~90% market share in online search provides a strong foundation for its digital advertising business. Alphabet’s revenue for the third quarter was $88.3 billion, up nearly 15% year-over-year and beating expectations by $2.05 billion. The company’s EPS was also strong, increasing 37% year-over-year to $2.12 per share, beating expectations by 27 cents per share.
Speaking to Pivotal Research Group, analyst Jeffrey Wlodarczak highlighted Alphabet’s leading position in online search and advertising, as well as its strong lines of business in AI and cloud computing. He wrote of the Internet giant: “If the status quo holds, GOOG has a very strong competitive position as it has a deep moat around its dominant core search business model (approximately 90% market share excluding China) and a clear path to leverage. 90%+ (excluding China) global device presence (considered to dominate consumer AI assistant usage), strong AI platform, and default AI Fiscal power to increase financial incentives to mobile phone manufacturers for deployment. GOOG also holds a strong third place in cloud computing. This is dramatic given that cloud market share for enterprise workloads is still relatively low (15-20%) (+ AI benefits), as evidenced by accelerated revenue growth in Q3. growth potential (+ AI benefits). The world’s largest video/audio streaming platform (YouTube) and the world’s leading browser (Chrome) with 65% global market share (excluding China). ”
Looking to the future, Wlodarczak rates GOOGL stock a Buy, with a price target of $225, implying 33% one-year upside potential. (Click here to see Wrodarczak’s track record)
Alphabet’s Strong Buy consensus rating is based on Wall Street’s 34 recent reviews, with a 27-7 vote favoring Buy over Hold. The stock is priced at $169.12, and the average price target of $207.9 points to an upside of 23% over the next year. (look GOOGL stock price prediction)
To find good ideas for trading stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, the tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. Content is for informational purposes only. It is very important to perform your own analysis before making any investment.
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