The generative AI revolution is far from over, but that doesn’t mean AI stocks, especially those that have enjoyed impressive gains in recent months, are immune to a substantial pullback. The bears and skeptics may have been calling for such a correction for quite some time. And though a growth-to-value rotation is always possible, I’m not so sure one will be on the table now that the Fed is done with the rate hikes.
Though fewer rate cuts than expected could be in for the year (perhaps two or less), it seems like the higher-growth names, especially those with AI exposure, are worth picking up as long as you can justify the price of admission.
With some companies (like OpenAI) and Alphabet (NASDAQ:GOOG, GOOGL) recently unveiling ample new AI features, tools, and projects, it’s getting harder to sit on the sidelines if you’re one of the folks who’ve been actively avoiding AI stocks, dismissing them because of their past-year rallies.
In this piece, we’ll go through three AI stocks that still look cheap, perhaps cheap enough to take on less damage come the next inevitable market correction.
Alphabet (GOOG, GOOGL)
Alphabet stock stands out as the cheapest Magnificent Seven member right now, with a forward price-to-earnings (P/E) multiple of 22.9 times. If that’s not a cheap price to pay for magnificence in the realm of AI, I really don’t know what is.
With Google I/O 2024 wrapped up (the word “AI” was used more than 120 times in the two-hour presentation!), I think it’s time for investors to re-evaluate where the $2.12 trillion AI juggernaut stands.
Personally, I was impressed with I/O, which unveiled plenty of new AI innovations. As part of I/O, Google revealed its multimodal AI assistant, Project Astra, a product that should compete with OpenAI’s recently unveiled ChatGPT-4o. Additionally, it pulled the curtain on Veo, a text-to-video generator that seems to be the answer to OpenAI Sora. Google also announced its Search AI Overviews will be coming very soon.
After such an AI-packed event, I find it absurd that GOOG stock isn’t well above the $180 mark. In any case, the stock looks cheap, and recent momentum looks tough to stand in the way of.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) stock is serious about spending money to advance its AI capabilities by leaps and bounds. While the social media and metaverse titan has been doing a fantastic job of innovating with its new Meta AI and LLaMA 3 models, it’s clear Mark Zuckerberg is not willing to pull any punches in the global AI battle. He wants to not only come out ahead but perhaps much ahead of the competition.
As it stands, Meta’s AI footing looks strong. As it starts spending heavily, future quarters could be in for upsetting surprises as costs pile up. However, in five years from now, I think AI could help Meta become a top-two growth stock in the Magnificent Seven cohort.
So, if you’re fed up with the dwindling growth prospects of some other Magnificent Seven stocks, META stock may be worth adding as we head into June. The stock’s not expensive either at 23.9 times forward P/E at writing.
Recently, Meta turned out the lights on its Workplace app, an effort that should free up cash to spend on things like AI.
Bumble (BMBL)
If you’re looking for a much smaller firm that could have greater AI upside, perhaps dating app firm Bumble (NASDAQ:BMBL) is more your cup of tea.
The company seems poised to make a huge splash in AI, a move that could change the way we think about matching and online dating. Indeed, dating apps aren’t exactly a great experience for many. Some may argue it’s based too much on looks, with less about other aspects (think personality) of a person that are arguably more important.
Bumble founder and ex-CEO Whitney Wolfe Herd believes “AI dating concierges” could play a big role in the future of dating. She discussed the incredible idea that AI could date on behalf of its customers during the Bloomberg Technology Summit. Undoubtedly, having AI find you the perfect match seems to be the holy grail of the dating app market. But for now, investors don’t seem all too impressed by the potential.
I probably won’t be the first to mention that AI-powered matching seems to be eerily similar to an episode of Black Mirror. Imagine interacting with an AI and having it match you with someone with whom it thinks you’d have chemistry. That’s a ground breaker that could help get past the icebreaker. And I think the powerful idea is more than worth getting behind, especially while BMBL stock is in a historic rut.
At just shy of 1.0 times price-to-book (P/B), I find BMBL to be absurdly undervalued relative to its market opportunity to be had in the nascent AI dating scene.
On the date of publication, Joey Frenette held shares of Alphabet (Class C). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
