Many artificial intelligence (AI) stocks have bid up quite a bit over the past year as investors have rushed to bet on the revolutionary new technology. Generative AI remains a profound technology today, as it did during the early days of the AI-fuelled stock rally. Still, AI is one of those technologies that stand to get exponentially better over time. And the technology is improving, even if shares of the top innovators begin going sideways or lower.
It wasn’t too long before we were all amazed by ChatGPT 4. Nowadays, many of us may have taken the large language model (LLM) for granted. It’s still a powerful technology, but the honeymoon period seems to have long faded.
Many of us are ready for the GPT-5 or OpenAI’s text-to-video generator Sora. Others have jumped ship to other LLM offerings on the market, some of which may outperform GPT-4 on certain criteria. As the momentum behind AI stocks cools and ChatGPT hype fades further, you may get a second chance to pick up shares of undervalued AI stocks that could gain substantially in the long term.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) stock has been consolidating over the past few months as investors ponder whether the firm has another blockbuster earnings blowout up its sleeves. Undoubtedly, the last quarter will be tough to top as the GPU juggernaut announces its results on May 22, 2024, at the market’s close.
Still, demand for top AI hardware is not slowing down. However, as an NVDA stockholder in the weeks leading up to earnings, one can’t help but feel jittery. At just 37.45 times forward price-to-earnings (P/E), I still view NVDA stock as a pretty good deal despite high expectations.
You’re getting a world-class AI chip maker at a multiple that I don’t consider out of this world. Pending a devastating, unforeseen downward shift in chip demand, I think NVDA shareholders have plenty of reason to hang in for the ride. Blackwell B200 GPUs could power the stock in the near future, and at a later date, Nvidia will likely have a newer chip that blows Blackwell out of the water.
Salesforce (CRM)
Salesforce (NYSE:CRM) doesn’t get enough credit for its AI innovations. With the stock still stuck in a “hangover” after Informatica (NYSE:INFA) acquisition talks dissipated two weeks ago, I think investors are getting a pretty solid entry point at just shy of $280 per share, down around 12% from its March peak. Perhaps the huge negative reaction in CRM stock caused a swift end to deal hopes. In any case, Salesforce has a pretty good seat in the AI show and one industry rivals could envy.
In the future, customer relationship management will largely depend on advanced AI copilots. With distinct advantages in AI for its niche, Salesforce is likely to come out on top as it widens its moat and gains further share on rivals. Additionally, the more AI Salesforce attaches to its current offerings, the more value it’s likely to produce for customers and the more willing they will be to pay up.
At 28.5 times forward P/E, Salesforce stands out as an undervalued AI stock that can more than keep up with the AI prowess of multi-trillion-dollar tech stars.
IBM (IBM)
IBM (NYSE:IBM) stock had its moment in the AI sunshine, helping it hit more than decade-long highs. Nowadays, it’s on the retreat as investors cool on the firm following a tough revenue miss and news of its $6.4 billion HashiCorp acquisition, even in light of its AI prospects.
Now down just over 11% from its recent March peak, shares seem more like a worthy bargain.
As impressive as Watsonx generative AI has been, the technology may still be a few years away from taking growth into overdrive. There’s no doubt that IBM has been taking steps to return to growth after many years of lackluster moves in the stock. AI will play a huge part in its comeback.
Though less timely than some of its AI-savvy peers, IBM still stands out as a potential long-term winner from the rise of the technology. At 16.5 times forward P/E, IBM stock stands out as an option for value investors seeking exposure to the booming field of AI.
On the date of publication, Joey Frenette held shares of Salesforce The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
