Jeremy Bowman, The Motley Fool
5 min read
In This Article:
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Some AI stocks are surprisingly cheap considering the growth potential of the technology.
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Alphabet is trading at a discount even as it continues to deliver steady growth.
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TSMC's competitive advantages appear to be getting stronger from AI.
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Artificial intelligence (AI) stocks might be the big thing on Wall Street, with rising valuations and trending tickers. But that doesn't mean there aren't good values to be found. While there are some fears that a bubble will form in AI, many of the big tech stocks leading the charge look downright undervalued. In fact, some of them even fall into the classic Warren Buffett model of value investing.
Buffett is known for avoiding tech stocks for most of his career, but there are some AI-related tech stocks that even a value investor like him could get behind. Keep reading for details about two of them.
OpenAI may be the most buzzworthy AI company, but there's no question that Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is a leader in AI. The company has been at the forefront of artificial intelligence for at least a decade, acquiring the AI research lab DeepMind in 2014, and launching Google Brain, which merged with DeepMind in 2023, before that.
The company has made AI a stated priority for at least eight years, and it's kept pace with advances in generative AI with Google Gemini, its AI model, and its AI assistant that is readily available on Google Search.
In addition to the company's prowess in AI technology, the stock's valuation is also attractive at a price-to-earnings ratio of just 20, meaning it trades at more than a 20% discount to the S&P 500.
Investors seem to be wary of the stock because of pressure on the regulatory front and concerns that generative AI chatbots pose a threat to the dominance of Google Search.
The regulatory concerns might seem valid after the company was found in court to have a monopoly in both search and ad tech, and the company is now awaiting a decision on "remedies" for the search business, while its remedies trial for ad tech is set for September. Alphabet could receive a fine or be forced to divest part of its business, but at the current valuation, any risk looks sufficiently priced in.
It's true that AI chatbots like ChatGPT and Perplexity pose a threat to Google Search, but thus far, Google has held its own, continuing to grow.
In fact, growth in the business has been steady, and Google Cloud has also turned profitable. Overall, its competitive advantages remain intact, and its valuation is attractive. It looks like a classic Buffett stock set to deliver growth over the long term.
