2 Cheap AI Stocks to Buy Now | The motley fool

The popularity of artificial intelligence (AI) stocks has led many companies to absurd valuations this year. Investors who don’t want to pay extravagant premiums for these types of investments may be put off by the prices in the markets right now. But there are a couple of stocks that are involved in AI and trade at relatively low earnings multiples. Both Alphabet(GOOG 0.97%) (GOOGL 0.85%) ANDHoldings of the Alibaba group(BABA -2.82%) for some intriguing investment options.

1. Alphabet

Alphabet’s stock is a bit of a sleeping giant when it comes to artificial intelligence. Both YouTube and Google could benefit from AI-powered tools. Unfortunately, the company got off to a bad start when its chatbot, Bard, didn’t make a good first impression as he made a mistake during his initial demonstration in February.

Still, Alphabet has a lot to gain from the emergence of artificial intelligence. In June, the company announced it would be launching a couple of tools, including one that will automatically place ads, taking the guesswork out and decision-making for advertisers. The company also previously said it would use Generative AI to start experimenting with ad placements in search results.

Though the tech stock is up 32% this year, it’s still trading at just 23 times its estimated future earnings. It’s below the average tech stock, which averages a forward price-to-earnings (P/E) multiple of 27. And even looking at the stock’s historical earnings multiple, Alphabet’s valuation looks a little cheaper than usual. :

GOOG PE report chart

GOOG PE Ratio data by YCharts.

Despite its strong performance already in 2023, Alphabet is a stock that can still go much higher in the future as it reaps the rewards of artificial intelligence improving its products and services.

2. Alibaba group holdings

One tech stock that has been a disappointing buy this year is Alibaba. It is down about 5% after initially getting a boost from news that it would split its business into as many as six different companies.

Unfortunately, that upward trend has faded as the company’s lackluster growth rate hasn’t given investors much else to get excited about this year:

BABA Revenue Chart (QoY Growth).

BABA Revenue data (Quarterly year-on-year growth) from YCharts.

But there is promise that the future could look better as China’s economy got off to a strong start in 2023, achieving 4.5% growth in the first quarter, better than the 4% analysts had expected. There are, however, renewed fears that rising COVID-19 cases could once again derail the economy, with some health officials predicting that new cases could top 65 million a week. For now, the lockdowns aren’t in place and the government doesn’t appear to have any plans to revert to those measures, but it’s something investors should definitely keep an eye out for.

Still, Alibaba makes for an intriguing AI game, as in April it announced the launch of Tongyi Qianwen, which translates to “seeking the truth by asking a thousand questions.” This is a language model that the company plans to incorporate into its applications. From e-commerce to cloud computing, fintech to entertainment, there is a lot of potential for Alibaba to benefit from adding artificial intelligence to its existing products and services.

Trading at a minuscule 9 times its estimated future earnings, Alibaba looks like a potential steal of a bargain. It is one of the dominant Chinese tech companies to invest in, and while its growth rate has been disappointing of late, with a stronger Chinese economy and an opportunity to improve its offerings, there could be much more growth for the business in the future. Buying stocks right now could be a great move for investors.

Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. David Jagielski does not hold any positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.

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