What’s driving the next wave of AI innovation? Check out these two undervalued stocks poised to reshape the AI landscape.
Artificial intelligence (AI) has been around for decades. From industrial automation and unbeatable chess engines to self-driving cars and vacuum cleaners, AI-assisted technologies are becoming a part of our daily lives.
However, AI adoption and public awareness accelerated dramatically in November 2022 when OpenAI released the ChatGPT AI platform. This ultra-modern large-scale language model (LLM) will be able to do things previously thought to be uniquely human. ChatGPT and its rivals can write half-decent text, produce near-photorealistic images and videos, and even create new music from a primitive soup of previous examples. A large set of human creations provides the raw material for computer-aided semi-creative works.
A handful of companies are driving this generative AI boom, led by AI accelerator designer Nvidia. (NVDA 0.78%). As Nvidia’s revenue grew 237% and its free cash flow increased 9x, its stock price soared more than 1,000% in two years. The LLM we see today wouldn’t be possible without Nvidia’s high-performance AI accelerator chips, and the company is considered the best AI stock on the market today.
However, even high performers can be overestimated. NVIDIA stock currently trades at a very high valuation ratio, with many hardcore bulls ignoring the rise of alternative AI hardware solutions.
So while I have some Nvidia stock in my portfolio, I’m not looking to buy more today. Safer AI investments do exist. Here are some great AI stocks that aren’t named Nvidia.
stock
2 years return
Price to sales ratio (P/S)
Price to free cash flow ratio (P/FCF)
Nvidia
1,050%
58.4
72.4
IBM
92%
3.4
16.9
UiPath
5%
5.1
21.6
Data collected from Finviz.com and YCharts on October 18, 2024.
IBM has a strategic focus on enterprise-class AI
Yes, you heard: International Business Machines (IBM -0.29%) is one of the best AI stocks to buy right now.
Big Blue has been an AI innovator since the 1970s, introducing groundbreaking technologies such as the first voice recognition system and the first programming language for self-learning manufacturing robots. And IBM’s interest in AI never waned. Although you don’t often see its name in headlines about generative AI, the company remains a leader in AI research.
As you know, IBM has other companies develop chatbots and image generation systems for consumers. Meanwhile, the company is focusing its AI products on deep-pocketed enterprise customers. The IBM Watsonx generative AI platform offers business-oriented features such as deep integration with other business-grade information systems, an audit-ready path from input data to generated content, and robust digital security.
That’s why IBM spent extra time preparing the release of these AI tools, insisting on high-quality results rather than rushing half-baked solutions to market. Now is the time to reap the rewards of that strategic delay.
Watsonx has been around for a year and a half and has already generated over $2 billion in generative AI orders. Next week’s third-quarter report will show how quickly business customers are embracing IBM’s AI solutions as the economy improves. And as you can see, the stock looks really cheap compared to the high-flying Nvidia stock.
UiPath’s AI-powered automation solution
Process Automation Expert UiPath (path 2.27%) This is another cheap bet on a solid AI business. The company’s robotic process automation (RPA) may sound like an industrial hardware controller, but it’s actually software that helps companies automate repetitive tasks.
Automated software has many advantages over human software in this area. Computers don’t get boring or tiring. Their actions cannot introduce “human error,” and UiPath’s sophisticated software robots do not suffer from machine learning equivalents such as sloppy programming. With the recently added LLM feature, UiPath’s robots can now also manage advanced but repetitive tasks, such as filling out forms and interpreting the meaning of text entered by end users.
According to UiPath, “RPA is not AI. AI is not RPA.” But by combining a robust RPA system with a powerful AI backend, you can get the best of both worlds in a single job automation process. UiPath’s tools are already a game-changer for clients whose information management activities are often mechanical. They only become more powerful over time.
UiPath stock has barely moved in the past two years, lagging far behind other AI experts and the S&P 500. (SNPINDEX: ^GSPC) market index. At the same time, trailer sales have increased 32% over the past two years, and free cash flow has gone from a loss of $134 million to a cash profit of $327 million.
With earnings soaring and stock prices plummeting, UiPath’s combined AI and RPA solutions are getting more and more powerful. That’s why this game changer seems like a good buy right now.
Anders Bylund holds positions at International Business Machines and Nvidia. The Motley Fool has positions in and recommends Nvidia and UiPath. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
