The cloud computing boom may have lost a bit of its luster as an investing theme since the glorious rise of generative artificial intelligence (gen AI). Undoubtedly, we’ve all gotten used to all the benefits of connecting to the cloud (or a remote data center). Many of us have taken the cloud for granted, as many application developers have already made the transition.
In these early innings of AI’s rise, many powerful large language models (LLMs) will need to run on remote data centers. As the number of parameters swells in size, it’s clear that the most powerful LLMs will find their home in the cloud. In the coming quarters, we’ll start seeing smaller, perhaps shrunk-down LLMs finding their home in our own local hardware. There are benefits to running AI both in the cloud and on the edge (our devices).
In this piece, we’ll focus on three undervalued cloud computing stocks that are innovating on gen AI.
Salesforce (CRM)
Salesforce (NYSE:CRM) is a cloud pioneer hard at work on next-generation AI products that can add value in the enterprise. As a top cloud and AI company still led by one of its founders, Marc Benioff, I’d not overlook the name as it looks to keep breaking boundaries with innovation. At this pace, I view Salesforce as an underrated technology darling that should get as much love as the Magnificent Seven stocks.
When it comes to AI in the cloud, it’s all about getting the most power and smarts out of a model. Salesforce’s Einstein Copilot isn’t just another AI assistant that can do a wide range of fun things; it’s a cloud AI that could help bring clients even closer to their customers. Indeed, adding AI across the suite could help its clients gain an even larger edge over their rivals.
Whether that’s in the form of more sales, better time management, or cost savings, Salesforce is one of the cloud AI firms that could see considerable gains as their gen AI investments begin to pay off over the next four years. Benioff and company are playing the long-term game, making CRM stock a great buy-and-hold type of name.
Adobe (ADBE)
Adobe (NASDAQ:ADBE) is another firm that’s benefited greatly from its prior transition into the cloud. Nowadays, it’s looking to embed gen AI across its many tools. While AI has also paved the way for new rivals, I believe Adobe is innovating on AI at such a pace that it will retain its lead in the creative software scene.
Recently, Microsoft (NASDAQ:MSFT) has been rolling out gen AI across various applications within its Windows OS. Even Microsoft Paint has been given an AI jolt with some impressive new features, including image generation.
As intriguing as the Paint upgrades are, the application is still not at the same level as some of Adobe’s offerings, like Photoshop and Illustrator. If anything, I expect continued AI upgrades across Adobe’s suite could help it pull further ahead of other players in the creative software market.
Whether we’re talking about the new Adobe Firefly model or AI additions across the slate, ADBE stock is an underrated and overlooked AI stock while it’s down 30% from its peak. It’s about time investors had given CEO Shantanu Narayen the benefit of the doubt when it comes to his firm’s new AI trajectory.
Amazon (AMZN)
Finally, we have public cloud service firm Amazon (NASDAQ:AMZN), which is in great shape to capitalize on the cloud AI boom. Undoubtedly, enterprises are going to want access to the most powerful AI models. This entails cloud-based AI rather than edge AI, the latter of which is better suited for consumers who value privacy over AI smarts.
With Amazon’s custom chips and the newest Nvidia (NASDAQ:NVDA) Blackwell GPUs coming to Amazon data centers, it’s clear has enough medium-term catalysts to justify hanging onto the stock as it looks to break out past $185 per share.
Though Amazon Web Services (AWS) CEO Adam Selipsky stepped down more than a week ago, I wouldn’t make too much of the matter. Amazon is primed (forgive the pun) to seize the AI cloud opportunity at hand. And at 51.3 times trailing price-to-earnings, I still view the tech juggernaut as pretty cheap.
On the date of publication, Joey Frenette held shares of Amazon, Microsoft and Salesforce. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
