Are you bullish on artificial intelligence (AI) but don't want to spend a massive premium to own Nvidia or one of the big-name AI stocks? There are still some fairly priced AI stocks that can be great options for investors to consider.
If you have $5,000 you can afford to invest and are looking to get some good bang for your buck when it comes to AI investing, you should consider putting that money into Rockwell Automation (NYSE: ROK), Oracle (NYSE: ORCL), and International Business Machines (NYSE: IBM). Here's why these stocks can be underrated buys.
1. Rockwell Automation
Rockwell Automation is focused on industrial automation. It can automate packaging, and help companies make and prepare food more consistently and efficiently. It has applications in a wide range of industries, making this a practical AI investment, which is full of diverse growth opportunities.
While Rockwell Automation has potential, the stock's returns have been underwhelming. In the past 12 months, the stock has declined 3% in value. For its 2024 fiscal year, which ends in September, the company projects revenue growth of up to 6.5%. This is not the stellar growth that investors have come to expect from many AI stocks, but given the many potential applications of Rockwell Automation's products and services in the long run, this has the potential to be an underrated growth stock to buy and hold.
Rockwell Automation is more of a long-term play for investors, but with strong profit margins of 12% over the trailing 12 months and the stock trading at just under 23 times its estimated future earnings (based on analyst expectations), this can be one of the better-priced stocks to buy that will benefit from the long-term potential of AI.
2. Oracle
Another decent value buy for AI investors is Oracle. The company says it has been experiencing strong demand for its Gen2 AI infrastructure. Oracle is a big name in databases and a trusted provider of cloud services. As the need for companies to do more on the cloud and store more data rises, Oracle's business will inevitably flourish.
In its most recent quarterly results, which ended on Feb. 29, revenue totaling $13.3 billion rose by 7.1% year over year, while profits jumped by 27% to $2.4 billion. AI is still in its early growth stages, but with Oracle being a key provider of database services, there's reason to be optimistic that its growth rate will accelerate; its cloud revenue for the quarter increased by 25% to $5.1 billion.
Oracle's stock has risen by 34% over the past 12 months, but at 20 times forward earnings, this is an even cheaper stock than Rockwell.
3. International Business Machines
International Business Machines (IBM) is another top tech name that can benefit from AI. The company's watsonx platform can run either on the cloud or on-premises. It has a useful application in that it is designed to help govern AI models.
While Nvidia and other companies can help provide the tools and resources to build AI models, governing them is just as important to ensure they are factual and safe. Chatbots have grown in popularity since the emergence of ChatGPT in late 2022, but they have also highlighted the risks with AI: inaccurate data and analysis. IBM's watsonx can play a crucial role in helping companies govern their AI models and minimize their risk.
The company says that demand for watsonx and generative AI solutions has "roughly doubled" in the past quarter. However, the company's total revenue of $17.4 billion for the period, which ended on Dec. 31, 2023, was up a modest 4% year over year.
With businesses still in the early stages of developing, training, and evaluating AI models, it could take a while for watsonx to be a big growth catalyst for IBM. With the company being a big name in tech and offering consulting services, it can help shape the industry's growth, particularly when it comes to AI and what to do and not to do.
IBM's stock has been the top-performing one on this list, with its 12-month gains topping 44%. But despite those impressive returns, the stock is the cheapest one with respect to forward earnings estimates, trading at a multiple of just 19.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Oracle. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
