Artificial intelligence (AI) is shaking up markets in ways that few ever dreamed possible. Ever since ChatGPT launched in November 2022, AI stocks have been rising in price. So far, the biggest winners have been NVIDIA (NASDAQ: NVDA) and Microsoft, which soared to all-time highs after a series of earnings releases showed them making large sums of money off AI. Unfortunately, that same phenomenon has resulted in those stocks becoming extremely expensive. NVIDIA trades at 63 times earnings, and Microsoft trades at 36!
These are some steep multiples. Fortunately, not every AI stock is so richly valued. If you look at AI component suppliers, or smaller companies working on generative AI, you can find deals. In this article, I will explore three relatively cheap AI stocks that can be had at modest valuations in today’s hot AI-powered stock market.
Taiwan Semiconductor
Taiwan Semiconductor Manufacturing (NYSE: TSM) is a Taiwanese – you guessed it – semiconductor manufacturing company. It builds the chips that companies like NVIDIA design. It is much more modestly valued than NVIDIA at today’s prices, trading at:
- 24 times earnings.
- 8.5 times sales.
- 5.3 times book value.
- 14.8 times operating cash flow.
Compared to the likes of NVIDIA, it’s a downright bargain. And, TSM is a great company in its own right. It has a 60% market share in semiconductor manufacturing globally. It’s the only semiconductor company that is a “pure play” manufacturer, giving it deep expertise that its clients can count on. Finally, it doesn’t compete with any of its customers, which may give it perceived trustworthiness. On the whole, it’s a great company.
Alphabet/Google
Alphabet (NASDAQ: GOOG), better known as “Google,” is one of the best-known companies involved in AI. It developed many of the core technologies that went into building OpenAI’s ChatGPT. Although Google is best known for its search engine and Youtube, it has many other products that use AI. These include:
- The Gemini chatbot.
- Google docs.
- Sheets.
- Google Cloud.
- And more.
At today’s prices, GOOG stock trades at 26 times earnings. It’s certainly pricier than TSM, but on the other hand, its products are more familiar, making it an easier stock to analyze. GOOG is the largest position in my personal portfolio and I plan on keeping it that way.
Open Text
Open Text Corp (TSX: OTEX) is a Canadian artificial intelligence company involved in text analysis and content management. Its best known product is AI Cloud, which helps companies structure and organize their data. With OTEX’s AI Cloud, companies can host all their vital performance metrics in the cloud and use AI as a co-pilot to perform functions such as:
- Building applications.
- Developing predictive insights.
- Training other models.
- Securing sensitive data.
This is a real laundry list of functions, which helps Open Text Corp sell the AI Cloud to customers who want a comprehensive data platform. OTEX’s most recent quarter was very good, boasting metrics like:
- $1.5 billion in revenue, up 68.2%.
- $466 million in operating income.
- $119 million in earnings.
- $398 million in operating cash flows.
Despite all this growth, OTEX still only trades at nine times earnings, making it one of the cheapest ways to gain exposure to AI today.
