Some cheap cloud stocks seem to have been glued to the sidelines amid the impressive rally in tech stocks. Undoubtedly, much of the focus seems to be on the “pick and shovels” types of plays right now, with the AI chip stocks stealing the show. Whether we’re talking about GPUs, CPUs, high-performance memory chips or data center cooling tech, anything that’s involved with AI hardware seems to have permission to surge.
With some of these AI enablers facing intense volatility to the end of the month, investors may be wondering if it’s a better idea to focus on “what’s next.” Though the pick-and-shovel plays may prove great buys on weakness in late June, the AI-savvy cloud stocks also stand out as compelling options for investors looking to broaden AI exposure.
Here are three cheap-looking, lagging cloud stocks that look tempting as investors hit the sell button on the AI trade.
Snowflake (SNOW)
Snowflake (NYSE:SNOW) has arguably been one of the most unloved cloud stocks this year. At the time of writing, SNOW stock is down over 47% from its February 2024 peak. With the multi-month Snowflake crash showing no signs of letting up, growth investors seeking value may have a shot at picking up shares at close to IPO prices.
Right now, investors don’t seem at all impressed by the company’s slate of new AI products. Perhaps it’s hard to get a grasp of how capable Snowflake’s models really are as an everyday consumer who doesn’t work with Snowflake directly. After all, Snowflake is an enterprise cloud software play. As Snowflake strikes more deals in AI, though, I’d look to the data-cloud firm as becoming more of an AI enabler whose services extend well beyond just data storage.
With recent Snowflake data breaches, an unproven rookie CEO at the helm and extreme negative momentum, SNOW stock is up against it. But sometimes, you need to brave blizzards for a shot at extreme undervaluation.
IBM (IBM)
IBM (NYSE:IBM) is another less-loved value play that’s looking quite cheap following its post-earnings correction. At writing, IBM stock trades at 19.9 times trailing price-to-earnings (P/E) while commanding a 3.87% dividend yield. You’d be hard-pressed to find such a capable AI innovator with a P/E multiple trading in the teens, let alone one that yields more than 3%.
Undoubtedly, the initial AI-fueled boom in IBM stock has hit a snag. But it could be an opportunity as investors take a pass on the decades-old tech firm.
On Monday, IBM stock rose 1.5% as the tech sector was hit with another bout of volatility. Goldman Sachs analyst James Schneider slapped IBM stock with a “buy” rating and a fresh $200 price target.
Why’s Schneider so bullish?
Schneider sees more growth on the horizon. Not just any growth, though. Sustainable growth as the firm finalizes “its pivot to long-term growth.” And he is absolutely right. Too many investors may be missing the forest for the trees after that last quarter.
Alphabet (GOOG, GOOGL)
Perhaps Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is the one company that can put those AI bubble worries to rest. The mega-cap tech firm behind Google Search, Google Gemini and Waymo (an autonomous car project that may very well be best in class) still doesn’t trade at a multiple that’s absurd unless, of course, we’re talking absurdly cheap.
At writing, GOOG stock trades at 27.6 times trailing P/E. That’s still not expensive for one of the best-positioned companies to profit from the early stages of the AI boom. Alphabet has the talent, the data and the wheels on the road (with Waymo) to disrupt new markets with AI in the near and distant future.
As impressive as the large language model Google Gemini is in its current state, I’m even more excited about the company’s recent efforts to hit the gas pedal on Google Cloud. As AI plays a bigger role in the public cloud, look for Google Cloud to really start gaining.
On the date of publication, Joey Frenette held shares of Alphabet (Class C) and Snowflake. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
