In 2023, tech stocks have become more popular. Many of the most popular names in the market have surged as hopes of interest rate cuts continue to drive interest. However, the surge in artificial intelligence (AI) adoption could be the most important factor to consider. Many top “Magnificent 7” stocks are certainly seeing this driver as key, with this catalyst affecting some companies more than others.
The Nasdaq may be trading near all-time highs right now, and valuations certainly seem frothy. However, a few tech stocks could be relatively undervalued (or at least fairly valued) given their AI tailwinds.
Let’s explore three such stocks that investors should consider.
Alphabet (GOOG,GOOGL)
In 2024, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has been on a roll. The company’s recent earnings reports have surpassed analyst expectations. And as the company continues to capitalize on strong ad spending, it’s driven in part by its key AI integrations. The success is evident in its performance, especially now that Alphabet has surpassed $2 trillion in market cap.
Despite its stock climbing by over 42%, driven by innovations like Google Veo and advancements in Google Search and Gemini, I think the stock remains undervalued at a trailing price-earnings ratio of 27.2-times. As a pivotal player in AI software development, Alphabet stock presents an attractive opportunity as we head into the summer months.
Investors should highly consider Alphabet, given the long runway with its AI tailwinds. The fact that this stock has been out-performing over the past 18 months is a sign of strength, not overvaluation. Indeed, there’s a reason all 37 analysts polled rate Google stock as a strong buy.
Meta Platforms (META)
Pioneering as a top social connection, Meta Platforms (NASDAQ:META) has been focusing more on expanding its business and innovating AI. From Facebook to Messenger and Instagram, META continues to revolutionize how we connect. Now, Meta Platforms has ventured into augmented and virtual reality (AR/VR) for immersive social experiences. The company’s push into these sectors has been driven by AI, and plenty of integrations are possible given the direction the company has headed.
The higher revenue and earnings expected from these initiatives have allowed Meta Platforms to go in directions many didn’t think possible. Indeed, the company’s recently-announced $0.50 quarterly dividend per share for its shareholders is a welcome surprise.
But it’s one that’s been driven by fundamentals. The company’s institutional interest rose in 2024, reaching nearly $722 billion in ownership. META stock ranked 6th in institutional investments, with 808 investors opening positions. Also, the stock saw a 32% year-to-date (YTD) increase, seeing 117% surge in net income growth in Q1. META’s Llama 3 AI showcases its ambition to lead in AI while rising ad impression and pricing metrics indicate substantial ad revenue.
To add to its influence, Mark Zuckerberg emerged as a leading advocate for open-source AI, diverging from the cautious approach of tech giants like Microsoft (NASDAQ:MSFT) and Alphabet. This stance sparked debate over AI accessibility, with Zuckerberg championing its availability to all developers.
Nvidia (NVDA)
When it comes to being a top choice for institutional investors in different metrics, Nvidia (NASDAQ:NVDA) shows resilience in strong stock performance and rising share prices. After an excellent Q1 earnings with a share price of $1,000, analysts are strongly bullish on NVDA stock. This AI darling has seen revenue and earnings explode, driving a fundamental boom in its stock price. Now, expectations are high, indicating continued investor optimism in Nvidia’s trajectory.
Also, Nvidia has continues exceeding expectations with soaring profits, driven by its dominance in chipmaking and AI. Net income reached $14.88 billion, and revenue reached $26.04 billion. A new era of AI factories is foreseen by Jensen Huang, and he believes it will revolutionize data centers.
Further, Huang dismissed concerns about future demand, citing strong growth in Q1 fueled by generative AI training. Data Center revenue hit a record $22.6 billion, comprising 86% of total quarterly revenue. If these trends continue, there’s certainly a lot to like about Nvidia’s upside potential.
On the date of publication, Chris MacDonald did not hold (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.
