In this article, we will be taking a look at 15 AI stocks that are on sale.
Big Tech: The Best Performing Sector of Q2?
Big tech, specifically artificial intelligence, is the sector that many are starting to consider as the best-performing sector of the market in the second quarter of 2024. The concentration of the major players in this space has been in the large-cap companies since your ability to fully develop AI and benefit from its profitability really depends on the scale of your business. Basically, the bigger a company is, the better it will be positioned within the AI-led market this year. Because of this phenomenon, big tech companies, with all the money in the world to invest in AI development, are ensuring that this revolutionary tech drives the overall tech sector to record highs in 2024.
According to Alex Kantrowitz, Founder of Big Technology, these trends can be expected to lift up other sectors in the market that have a strong relationship with AI. One such sector is energy, which, according to Kantrowitz, is going to be seeing a lot more demand from customers that are developing AI and creating and training Large Language Models. While many players in the AI space today are also working on finding ways to use energy for AI development more efficiently, the general consensus seems to be that there’s a need to tap into more existing sources of energy until such methods are found. Because of this, the markets may see demand for nuclear energy rise to unprecedented levels as well.
AI in Digital Advertising
Another sector that might catch the AI draft and be propelled higher is digital advertising. With the rise of AI-powered marketing clouds, many advertisement-focused businesses are beginning to see immense increases in their return on investment. According to David Steinberg, the CEO of Zeta Global, AI is leading to immense growth within the advertising ecosystem, with Steinberg expecting growth in low double-digits this year. He noted that the launch of ChatGPT was the “big renaissance moment” for AI, which changed our perception of this technology from being a figment of science fiction to something serious enough to be discussed in company board rooms. Because of this, Steinberg believes that every company out there in advertisement and retail is pivoting its business to incorporate high-quality enterprise AI usages in its operations.
Part of the reason why AI is taking over the market in this manner is the promise it makes – efficiency coupled with revenue growth. By focusing on AI development and integration, businesses across the globe can increase their efficiency while also generating higher profits for themselves and their shareholders. Considering this, and the fact that AI stocks have been performing exceptionally well in the second quarter, we have compiled a list of some AI stocks on sale that investors may wish to consider for their portfolios this year.
A scientist at a computer station, surrounded by a neural network of artificial intelligence code.
Our Methodology
We first compiled a list of 40 AI stocks by sifting through ETFs and online rankings, including our own rankings. We then selected the 15 stocks with P/E ratios lower than the S&P 500’s P/E of 24.1 as of September 27 (according to data from WSJ) and with expected EPS growth for this year. The stocks are ranked based on their P/E ratios, from the highest to the lowest. We also mentioned the number of hedge funds holding stakes in each stock, as of the second quarter.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
AI Stocks That Are On Sale
15. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Holders: 77
Expected Earnings Growth: 6%
P/E Ratio: 23
Applied Materials, Inc. (NASDAQ:AMAT) is a semiconductor materials and equipment company based in Santa Clara, California. It provides manufacturing equipment, services, and software to the semiconductor, display, and related industries.
This semiconductor company has been reaping the profits generated from the race for AI leadership since this has led to Applied Materials, Inc. (NASDAQ:AMAT) seeing higher demand for its unique and connected portfolio of products and services. This positions Applied Materials, Inc. (NASDAQ:AMAT) uniquely in a way that will ensure its outperformance in the market.
Seeing as the company generated revenue of $6.8 billion, up 5% year-over-year, with operating margin coming in at 28.7% in the third quarter, some of the positive effects of this position have already started to show. While Applied Materials, Inc.’s (NASDAQ:AMAT) management is optimistic about its prospects, some challenges that may deserve attention include potential risks related to customer concentration and geopolitical tensions, especially with Applied Materials, Inc. (NASDAQ:AMAT) having significant revenue exposure to China.
While semiconductor players like Applied Materials, Inc. (NASDAQ:AMAT) are generating positive results, investors can’t expect extraordinary results at least until 2025, which is when most of these companies will begin to really shoot up after absorbing all leftover inventory from 2023. Still, Applied Materials, Inc. (NASDAQ:AMAT) seems to be trading at quite a bargain, considering its current performance and valuation.
We saw 77 hedge funds long Applied Materials, Inc. (NASDAQ:AMAT) in the second quarter, with a total stake value of $5.5 billion. Cantillon Capital Management was the largest shareholder, holding 3,242,570 shares.
Parnassus Investments mentioned Applied Materials, Inc. (NASDAQ:AMAT) in its second-quarter 2024 investor letter:
“Applied Materials, Inc. (NASDAQ:AMAT) is the world’s largest supplier of wafer fabrication technologies used in semiconductor manufacturing. The company reported solid earnings for the quarter, and investors believe Applied Materials should continue to benefit from accelerated industry spend due to AI and share gains.”
14. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 165
Expected Earnings Growth: 31.9%
P/E Ratio: 21.6
Alphabet Inc. (NASDAQ:GOOG) is a big tech company offering interactive media and communication services. It is based in Mountain View, California. The company is an active player and pioneer in the AI space is also behind Gemini, a major Large Language Model. Moreover, its Google Cloud Platform is among the top choices for enterprises and developers for building AI and ML applications.
Alphabet Inc. (NASDAQ:GOOG) is a company with immense financial fortitude since it has managed to generate significant profits since its IPO 20 years ago. The company reported $23.5 billion in net income in the second quarter alone, which translated to a net profit margin of 28%. With this much financial stability, the company’s involvement in the AI space has made many investors consider it among the top AI stocks to buy.
Today, almost all of Alphabet Inc.’s (NASDAQ:GOOG) products and services have AI integrated into them. A few examples of its existing AI-enhanced offerings include Google Maps, YouTube, Gmail, and the Google Cloud. With plans to invest at least $12 billion per quarter on capital expenditures, Alphabet Inc. (NASDAQ:GOOG) is expected to take its AI integration even further to its own and its shareholders’ benefit.
Considering these factors, the company’s current valuation and P/E ratio of merely 23.5 points makes Alphabet Inc. (NASDAQ:GOOG) quite a steal in the AI market today.
There were 165 hedge funds long Alphabet Inc. (NASDAQ:GOOG) in the second quarter, with a total stake value of $22.01 billion.
Diamond Hill Capital mentioned Alphabet Inc. (NASDAQ:GOOG) in its second-quarter 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon, Texas Instruments and Alphabet Inc. (NASDAQ:GOOG). Media and technology company Alphabet also continued delivering strong results in its search, YouTube advertising, YouTube subscription and cloud businesses. Shares rose amid an environment that continues favoring mega-cap technology companies.”