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Growth stocks in the artificial intelligence (AI) space have generally done very well in recent years. Nvidia, for example, is up around 1,300% over the last five years.
There are still a lot of AI stocks that look cheap, however. Here are three that I believe are worth a closer look today.
A suite of AI products
Let’s start with tech powerhouse and Google owner, Alphabet (NASDAQ: GOOG). It currently trades on a forward-looking price-to-earnings (P/E) ratio of just 21.
That’s roughly in the line with the US market average. So, unlike a lot of other AI stocks, Alphabet isn’t commanding a huge valuation premium to the market at present.
Now, one reason this stock has a lower valuation than some others is that generative AI poses a threat to Google’s business model (search). No doubt, there’s some uncertainty here.
Yet with its suite of powerful products (AI mode, AI Overviews, Gemini, Google Maps, etc), I’m optimistic that Google will remain relevant in the AI era. And it seems the market is starting to take the same view.
After some weakness early in the year, the stock is now rising again. I see the potential for further gains ahead and believe the stock is worth considering today.
Rolling out AI agents
Next, we have AI agent specialist Salesforce (NYSE: CRM). It’s currently trading on a P/E ratio of 22.7.
This is very much a ‘battleground’ stock right now. On one hand, the bears say that automation and AI are going to reduce demand for Salesforce’s traditional customer relationship management (CRM) software. On the other hand, there are those who see a lot of potential in the company’s agentic AI offering, Agentforce, and believe the stock is cheap today.
Personally, I’m in the latter camp. While I acknowledge the risks here, I don’t think Salesforce’s offering is going to become obsolete any time soon. And with the company rolling out innovative AI and data services, I think it will continue to grow in the years ahead. So, in my view, it’s a stock to think about buying today.
A crucial cog in the ecosystem
Finally, I think semiconductor manufacturing equipment maker Lam Research (NASDAQ: LRCX) is worth a look today. It currently trades on a P/E ratio of 22.4.
This company plays a really important role in the AI ecosystem. Because it manufactures chip-making equipment needed to develop advanced AI processors (designed by the likes of Nvidia and AMD and built by the likes of Taiwan Semi and Samsung).
This industry importance was reflected in the company’s results for Q2. For the period, revenue and earnings were up 10% and 27% year on year respectively.
Looking ahead, a risk here is China restrictions. Because this country represented 35% of revenue last quarter.
Interestingly though, the US only represented 6% of revenue. If the US ramps up its chip manufacturing capabilities in the years ahead as it plans to, I think revenues here could grow substantially.
Note that since the Q2 results, many brokerage firms have increased their price targets for this stock. Analysts at Susquehanna went to $135, which is 35% above the current share price.
