We all know the importance of artificial intelligence, which actually undergirds the enormous value of budget AI investing. According to data compiled by Statista, the value of the digital intelligence industry recently hit almost $100 billion. However, analysts project that this figure may reach up to nearly $2 trillion by 2030. That’s reason enough to consider undervalued AI stocks.
However, it’s easier said than done to invest in AI on a budget. Not to pick on this enterprise but semiconductor firm Nvidia (NASDAQ:NVDA) skyrocketed this year because its graphics processors undergird complex AI-based calculations. But because of the enormous demand, NVDA trades at roughly 233 times trailing earnings.
My question to you is, why bother paying so much for digital intelligence when you can get the same innovation for much cheaper? On that note, below are AI stocks you can’t ignore.
Alphabet (GOOG, GOOGL)
Fundamentally, arguably the vast majority of people understand the powerful AI implications of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Sure, the internet and tech giant has been slow regarding its integration of an AI-based chatbot. Right now, OpenAI and ChatGPT runs the show. However, Alphabet’s Bard can eventually make up new ground thanks to the data mine associated with the underlying Google ecosystem.
Still, with all that being said, does GOOG translate as one of the budget AI investing ideas? It doesn’t seem like it at first because its earnings multiples tend to run on the high side. However, based on the 10-year discounted cash flow (DCF) model, the fair value of GOOG should be $147.50. In contrast, at time of writing, GOOG trades hands at $128.54.
As well, the company benefits from overall strong financial metrics. Backed by a stable balance sheet, Alphabet prints a three-year revenue growth rate (per-share basis) of 22.9%, outflanking nearly 74% of its peers. In addition, its consistent profitable, featuring a robust net margin of 21%. Therefore, it makes a great case for undervalued AI stocks.
IBM (IBM)
If you really want to invest in AI on a budget, I’d really look into IBM (NYSE:IBM). Sure, it’s far less exciting of an enterprise than Nvidia, that goes without saying. Also, its performance on the charts isn’t exactly sending shivers down the competition. For all the talk about a new IBM embracing the future, shares have gained less than 2% since January start.
Nevertheless, under the framework of budget AI investing, “Big Blue” deserves closer inspection. Specifically, the market prices shares at a forward multiple of 15.2. As a discount to projected earnings, IBM ranks better than 75.07% of the competition. In addition, IBM trades at 12.95x free cash flow. In contrast, the sector median clocks in at 24.95X.
Now, buying a “paper” discount doesn’t mean much if the enterprise doesn’t swing higher. I believe it will over the long run thanks to its Watson AI platform. Already, IBM has demonstrated the utility of Watson for real-world applications. Plus, the IBM brand offers a significant trust factor. Therefore, it’s one of the AI stocks you can’t ignore.
H&R Block (HRB)
At first glance, tax and accounting service provider H&R Block (NYSE:HRB) doesn’t seem like a natural candidate for budget AI investing. However, that would be a mistake. Early this year, the company announced an industry-first AI technology that enables Americans to find tax refunds that a competing tax software company’s program missed.
While accountants have a reputation for being boring, they can seriously lay down some fire on their rivals. To be fair, HRB has been slow this year, slipping nearly 4% since the January opener. However, over the long run, HRB should benefit from macro events like the growing transition to the gig economy. Since independent contractors feature different tax profiles than employees, the spiked complexity should boost the consultancy business.
Additionally, I appreciate under the context of undervalued AI stocks that the company flies under the radar. In my opinion, that’s great for you. Right now, the market prices HRB at a forward multiple of 8.27. As a discount to projected earnings, the company ranks better than nearly 93% of its peers.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
