These AI stocks are the cheapest of the Magnificent Seven tech stocks.
These players are well-established market giants, and the AI boom could offer them a new wave of growth in the coming years.
10 stocks we like better than Meta Platforms ›
With the S&P 500 heading for a double-digit annual gain, the current bull market isn’t over. In fact, this fall, it entered its third year, and history suggests the momentum could keep on going, as past bull markets that have made it this far have gone on to advance.
Still, it’s important for investors to look much farther down the road and consider investing in players that may do well today and in future stock market phases. Artificial intelligence (AI) stocks have powered gains during the current bull market, and there’s reason to believe they may be big winners during the next bull market, too. After all, analysts predict that today’s AI market will climb from about $300 billion now to a couple of trillion dollars by early next decade.
Now, here’s the best news of all: Even though AI stocks have increased, two in particular still remain cheap, and these top tech companies could lead the next bull market. Let’s check them out.
Image source: Getty Images.
Meta Platforms(NASDAQ: META) is the cheapest of the Magnificent Seven tech stocks that have led the S&P 500 higher in recent years. This tech titan trades for only 26x forward earnings estimates, down from about 30x a few months ago. Even that level was reasonable, but today’s price truly offers investors a buying opportunity.
Here’s why: Meta has gone all in on AI, meaning it is well-positioned to benefit from the technology and potentially emerge as an AI leader over the long run. The company has built large language model (LLM), Llama, and has put it to work to transform something that powers Meta’s revenue: advertising.
Since Meta is a social media giant, owning popular apps such as Facebook and Instagram, it’s a place advertisers already want to be, as they know they can reach us here. If they see better and better results from their ads, they’re likely to boost spending. And this should equal revenue growth.
Meanwhile, Meta’s billions of dollars in earnings mean it has the financial strength to invest in the AI opportunity — and at the same time, Meta rewards shareholders with dividend payments. This tech leader has shown that it has benefited from its investments over the long term, as we can see in its return on invested capital, and this suggests the company and investors may score a win in AI too, making Meta a company that might power the next bull market higher.
META Return on Invested Capital (Annual) Chart
META Return on Invested Capital (Annual) data by YCharts
Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) has a few things in common with Meta. Like Meta, Alphabet has a well-established, profitable business, it relies on advertising to generate most of its revenue today, and its stock price is dirt cheap.
Let’s start with the first point. Alphabet has been delivering billions of dollars in earnings for years due to its strengths in something most of us use every day: internet search. The company’s Google Search is the market leader by far, and that brings me to how Alphabet makes most of its revenue.
Advertisers rush to Alphabet so that they may promote their products or services on the Google platform, and this helped the company just recently report its first-ever $100 billion quarter. In addition to this revenue stream, Alphabet has another key one, and that’s cloud computing. Google Cloud is going strong, serving customers with a wide variety of products and services, including those in the area of AI.
Alphabet, like Meta, has built its own LLM, Gemini — the company uses Gemini for its own purposes and offers access to this important AI tool to customers.
Finally, Alphabet is another tech player that’s trading for a song today, at just 29x forward earnings estimates. Alphabet already is generating growth from AI, and this is likely to continue as the AI market expands in the coming years – and that’s why this cheap stock may be a key driver of the next bull market.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.
These AI Stocks Could Lead the Next Bull Market and They Are Still Cheap was originally published by The Motley Fool
