Artificial intelligence (AI) has emerged as a groundbreaking force, revolutionizing industries and reshaping the way we live, work, and interact. From self-driving cars to voice-activated virtual assistants and predictive algorithms, AI’s influence is pervasive and growing. This surge in AI technology has also created a ripple effect in the stock market, with AI stocks becoming a focal point for investors worldwide.
Understanding the concept of “undervalued” stocks is crucial for any investor. In simple terms, an undervalued stock is one that is selling for a price perceived to be below its intrinsic or true value. This could be due to a variety of factors, including market volatility, economic downturns, or company-specific issues. However, what makes these stocks attractive is the potential for significant returns if the market corrects the price discrepancy.
Investing in AI stocks, particularly those that are undervalued, can be a strategic move. As AI continues to evolve and permeate various sectors, companies leveraging this technology are poised for growth. However, despite their potential, some of these stocks are trading for less than their true value, presenting a unique opportunity for investors.
In this blog post, we will delve into the world of AI stocks, focusing on those that are currently undervalued. We’ll explore the potential of AI, and present five undervalued AI stocks that are ripe for investment.
The Potential of AI
Artificial Intelligence is no longer a concept confined to science fiction. It’s a tangible, transformative technology that’s reshaping our world. From healthcare and finance to transportation and entertainment, AI’s influence spans across all industries, driving innovation and growth.
AI’s potential lies in its ability to learn, reason, and self-correct. It can process vast amounts of data faster and more accurately than humans, uncovering patterns and insights that can drive strategic decision-making. Whether it’s predicting consumer behavior, diagnosing diseases, or improving supply chain efficiency, AI’s applications are vast and varied.
Looking ahead, the future of AI appears bright. According to a recent report by Grand View Research, the global AI market size is projected to reach an astounding USD 1,811.75 billion by 2030, expanding at a compound annual growth rate (CAGR) of 37.3% from 2023 to 2030. This exponential growth is driven by increasing data volumes, advanced algorithms, and improvements in computing power and storage.
The impact of AI on the stock market is equally significant. As more companies adopt AI technologies, their potential for growth and profitability increases. This, in turn, can drive stock prices up, creating lucrative opportunities for investors. However, not all AI stocks are priced at their true value. Some are undervalued, trading at prices lower than their intrinsic value. These stocks present a unique opportunity for investors to buy into high-potential companies at a discounted price.
In the next sections, we’ll explore the criteria for selecting undervalued AI stocks and present five AI stocks that are currently undervalued. Whether you’re a seasoned investor or just starting your investment journey, this guide will provide valuable insights into the exciting world of AI stocks.
Top 5 Undervalued AI Stocks
Navigating the vast landscape of AI stocks can be challenging, but armed with the right knowledge and criteria, you can uncover hidden gems. Here, we spotlight five AI stocks that, despite their strong potential, are currently undervalued.
01
of 05Zebra Technologies (ZBRA)
Zebra Technologies, a pioneer in enterprise asset intelligence, presents an enticing investment opportunity. Despite a less-than-stellar earnings report for the first quarter of 2023 and subsequent analyst downgrades, Zebra’s long-term prospects remain robust. The recent dip in the company’s stock price may be seen as an overreaction, providing a prime opportunity for patient investors to acquire shares at a discount.
Zebra Technologies is not just a leader in supply chain management solutions; it’s also making significant strides in the AI and robotics sectors. This is largely due to strategic acquisitions that have expanded and diversified its offerings. For instance, the acquisition of Antuit.ai, an AI-powered SaaS provider, in 2021 has enabled Zebra to offer customers advanced solutions for predicting customer demand across various locations, leading to more efficient ordering processes.
Further diversifying its portfolio, Zebra acquired Matrox Imaging in 2022, a move that expanded its range of machine vision products, software, and services. Matrox Imaging’s offerings, including 3D sensors and smart cameras, help industrial customers reduce manufacturing costs, improve product quality, and increase compliance and yield.
Despite its aggressive growth strategy, Zebra has maintained a prudent approach to financial management. With a net debt-to-adjusted EBITDA ratio of 1.6, the company is well-positioned to continue expanding its AI and robotics offerings through acquisitions without compromising its financial stability.
Currently, Zebra’s shares are trading at about 17.1 times forward earnings, a discount considering its five-year average multiple of 19.8. This, coupled with a nearly 26% drop from its 52-week high, makes Zebra’s stock an attractive investment opportunity.
02
of 05OpenText (OTEX)
OpenText, a leader in enterprise information management (EIM) cloud software, is a standout among undervalued AI stocks. Its software, crucial for document management, decision-making, and cybersecurity, is used by organizations globally. Despite a recent surge in share price, OpenText’s robust outlook and expectations of improving margins suggest more growth is on the horizon.
The company’s strategic integration of AI across its platform opens up new growth avenues. This, coupled with impressive sales momentum from strategic acquisitions and organic growth, underscores OpenText’s strength. Its annual recurring revenues have hit the $1 billion mark, up 37.7% year-over-year, demonstrating the resilience of its core business.
Despite short-term margin pressures due to acquisitions, the long-term outlook is positive. OpenText anticipates earnings benefits from continued top-line growth and deal integrations. The upward revision of its full-year 2023 growth and free cash flow guidance further underscores its strong prospects.
OpenText’s integration of AI into its EIM software suite sets it apart. Its use of advanced language learning models, including “ChatGPT,” revolutionizes document management. This commitment to AI, coupled with strong financial performance and growth prospects, makes OpenText a compelling investment opportunity. Its current undervaluation presents a golden opportunity for investors to acquire shares in a leading AI company at a discounted price.
03
of 05Veritone (VERI)
Veritone has made a name for itself in the AI space with its innovative AI-powered operating system, aiWARE. This system, known for its open architecture, integrates disparate data sources, including audio and visual, into actionable intelligence results. It has found applications across various sectors, including entertainment, government, legal, and media.
Veritone’s financial performance has been impressive, with the company reporting record quarterly revenue of $16.8 million in the fourth quarter of 2020, marking a year-over-year gain of 35%. This increase was primarily driven by sales gains in aiWARE SaaS and Advertising, which were up 53% and 50% respectively.
Despite these strong financials, Veritone’s stock experienced a steep drop from its peak value in February. This was largely due to concerns about the company’s future guidance, with management predicting a non-GAAP net loss in the range of $3.9 million to $4.4 million in the first quarter of 2021. While this represents a 38% improvement at the mid-point from the first quarter of 2020, investors are eager to see a profit.
However, some analysts believe that this lower stock price presents an attractive entry point for new investors. They see Veritone as a well-positioned AI growth story, with accelerating top-line growth in both AI SaaS and Advertising. If the company’s Content and Licensing business returns to 2019 levels with modest growth in 2021, it implies that its 2021 guide for advertising and AI SaaS could see north of 40% growth.
With a current share price of $24.53 and a consensus average price target of $38.75, Veritone offers investors the potential for significant share growth this year.
04
of 05Cerence (CRNC)
Flying under the radar in the AI landscape, Cerence (NASDAQ:CRNC) is a hidden gem waiting to be discovered. The company is making waves in a sector ripe with AI opportunities – the automotive industry. Cerence is at the forefront of engineering automotive cognitive assistance solutions, creating a seamless digital connection between automobiles, drivers, and passengers.
Cerence’s conversational AI products are revolutionizing the driving experience, offering increased safety, comfort, and information. Its voice-powered AI interactive platform is a testament to the future of in-vehicle interactivity. With the growing demand for advanced features in vehicles, Cerence’s platform is meeting these needs head-on. The platform’s versatility, extending to two-wheeled vehicles, opens up new avenues such as urban delivery.
Despite a recent dip in performance, with losses posted in the most recent quarter, the broader market conditions and a pause in Fed rate hikes paint a promising picture. For investors who believe in Cerence’s potential to transform in-vehicle interactivity with its AI solutions, the current scenario presents an opportune moment to invest in this undervalued AI stock.
05
of 05C3.ai (AI)
C3.ai (NASDAQ:AI) is a fascinating player in the AI sector that has navigated a winding path through carbon emissions, energy transition, and Internet of Things (IoT) technologies before finally settling on AI enterprise software. This journey is reflected in the ‘ai’ suffix in its name, symbolizing its commitment to AI.
C3.ai operates both domestically and internationally, offering the ‘C3 AI Platform’, an application development and runtime environment that empowers enterprises to develop and deploy their own AI applications. Additionally, the company provides ready-to-use AI application solutions to clients across various industries. C3.ai’s share price has seen a significant surge, rising nearly 202% year-over-year, riding the wave that’s lifting AI stocks to new heights.
However, it’s the company’s financials that should be the focal point for investors. Despite nearly tripling its revenues over the past three years, C3.ai’s profitability has been inconsistent. For instance, in fiscal year 2021, C3.ai managed to reduce its earnings per share loss from -$1.19 to -$0.51. However, in its most recent fiscal year 2023 report, C3.ai reported a larger EPS loss of -$1.53. As investors evaluate C3.ai, they should closely monitor how the company scales its subscription volume and improves profitability. Despite these challenges, C3.ai has made a significant turnaround and presents an intriguing growth story.
AI is the Future
The five undervalued AI stocks we’ve highlighted – Zebra Technologies, OpenText, Veritone, Cerence, and C3.ai – represent compelling investment opportunities in this dynamic sector. Each of these companies is leveraging AI in unique ways, driving innovation and growth in their respective industries.
The transformative potential of artificial intelligence is still being realized, and the companies at the forefront of this revolution are well-positioned for sustained growth. For instance, tech behemoths like Alphabet (Google’s parent company), Microsoft, and Amazon are not only integrating AI into their existing services, but are also pioneering new AI-driven technologies. This positions them for continued leadership in the future.
But, for investors looking for stocks they can confidently hold onto for the long term, check out our blog post on Stocks that you can hold forever.