These stocks are reasonably priced right now.
Everyone’s been talking about artificial intelligence (AI), and companies that are leaders in this technology have pushed the stock market higher in recent months. For example, the share price gains of chip designer Nvidia (NVDA -1.31%) accounted for 32% of the S&P 500’s overall increase from the start of the year through the end of May, according to Statista. This area is hot right now, but its momentum could continue for quite some time because the AI growth story is still in its early days. Analysts at MarketsandMarkets predict the size of the AI market will soar past $1 trillion by the end of the decade.
Meanwhile, some of today’s leading AI stocks still trade at reasonable valuations — and some that have the potential to become future winners also look like reasonable buys. So there are still plenty of opportunities to get in on tech stocks that are likely to benefit over time from the AI boom. Here are three that look like solid buys right now.
Image source: Getty Images.
1. Intel
Intel (INTC 0.75%) didn’t play a major role in the early chapters of the AI story. In fact, the leader in central processing units — which are the main processors in any computer — got left behind. But Intel recently put a new focus on accelerated computing and launched a strong portfolio of AI products, including one that may even rival leader Nvidia’s top graphics processing unit (GPU). Intel’s Gaudi 3 accelerator has surpassed Nvidia’s H100 inference performance and energy efficiency in certain models — at a lower cost. Even if Nvidia’s next release surpasses it, price-conscious customers still could prefer Intel’s offering.
On top of this, Intel may have another new revenue driver coming. The company has opened up its manufacturing infrastructure to other chipmakers, and set a goal of becoming the world’s second-biggest third-party chip foundry by 2030. Today, North American customers largely turn to manufacturing in Asia for their foundry needs, but in the future, they may appreciate this closer-to-home option.
These two elements make Intel a compelling recovery and growth story for the long-term investor — especially at today’s valuation of 28 times forward earnings estimates.
2. Meta Platforms
CEO Mark Zuckerberg disappointed investors during Meta Platforms’ (META 0.95%) latest earnings call when he said it would take the company time to monetize its AI investments. But I don’t see that as bad news. As Zuckerberg said, this will follow the pattern of other big Meta investments — which have delivered growth over time for the company and for investors who held onto their shares.
The social media giant aims to become an AI leader, integrating the technology throughout its products and services. Ensuring that its Facebook, WhatsApp, Messenger, and Instagram apps stay on top is key for Meta because it generates most of its revenue from advertisers — and they’ll keep coming back if their target audiences stick around and spend more time on those apps.
Meanwhile, Meta is financially solid, its free cash flow has been growing, and it even declared its first-ever dividend.
META Free Cash Flow data by YCharts.
Trading at 25 times forward earnings estimates, Meta looks like a great buying opportunity right now.
3. Nvidia
Nvidia has climbed at percentage rates in the triple digits over the past three years, and its shares soared past $1,000 earlier this year. The tech giant completed a stock split recently, which brought the price of each individual share back down out of the stratosphere, but it’s important to remember that this financial maneuver didn’t lower the chipmaker’s valuation or change anything fundamental about the company. It just made it easier for a broader range of investors to access the stock without relying on fractional shares.
Though Nvidia’s market cap has advanced significantly, it still represents a great long-term buy. The company dominates the AI chip market, and its focus on innovation should help it keep that dominance going. Management has pledged to update its GPUs annually, a pace that could keep it ahead of its rivals. Next up this year is a particularly big launch — the release of a whole new architecture called Blackwell that features six innovations including Nvidia’s best chip yet.
Today, Nvidia trades for 45 times forward earnings estimates, which is a high valuation. But Nvidia stock definitely is worth the premium thanks to its AI leadership and the likelihood of it remaining in a top position in this high-growth market.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.