Forget Nvidia: These 2 Artificial Intelligence (AI) Stocks Are Still Historically Cheap
Artificial intelligence (AI) is currently the hottest trend in the investment world, with the potential to add trillions of dollars to the global economy by 2030. While semiconductor stock Nvidia has been the poster child for the AI revolution, there are two other AI stocks that offer even better value.
One AI stock that is still historically cheap is Meta Platforms, the company behind the top social media platforms like Facebook, Instagram, and WhatsApp. Meta is utilizing AI in various ways, including virtual chatbots and generative AI solutions for tailored advertisements and improved search functions. Despite gaining a record-breaking market cap of $197 billion in a single day, Meta remains exceptionally cheap.
Another bargain AI stock is Alibaba, China’s leading e-commerce company. Alibaba’s e-commerce platforms, Taobao and Tmall, account for over 50% of China’s online retail sales. Moreover, Alibaba’s cloud services, particularly its large language model known as Tongyi Qianwen, hold great promise in the AI space. Generative AI within Alibaba’s cloud can enhance search quality, comparisons, and personalized marketing.
Both Meta and Alibaba have strong financial positions. Meta closed out 2023 with $47 billion in net cash and generated nearly $46.8 billion in income from operations. Alibaba, on the other hand, had over $85 billion in cash and investments as of September 2023. With their dominant market positions and AI-driven growth strategies, both companies offer compelling opportunities for investors.
Compared to Nvidia, these two AI stocks are significantly cheaper. Meta trades at just 13 times forward-year cash flow, which is 17% below its five-year average. Additionally, with a price-to-earnings-growth ratio (PEG ratio) of less than 0.7, Meta presents an attractive investment proposition. Alibaba, on the other hand, is valued at only 5 times forward-year earnings, the lowest it has ever been as a public company.
While Nvidia remains a key player in AI, the company faces challenges such as increased competition from AMD and Intel, as well as export restrictions to China. Considering these factors, the estimated price-to-cash-flow ratio of 61 for Nvidia in fiscal 2024 seems exceptionally pricey.
For investors seeking exposure to the AI trend, Meta Platforms and Alibaba present compelling opportunities at historically cheap valuations. With their well-defined plans to incorporate AI into their growth strategies, these two companies offer better value than Nvidia. As the AI revolution continues to unfold, savvy investors may want to consider these alternative AI stocks for their portfolios.
Disclaimer: This article is not intended as financial advice. Please conduct your own research before making any investment decisions.
