Are you a cautious investor? If you are, then you might fret about what to do with artificial intelligence (AI) stocks. On the one hand, these stocks seem revolutionary, with virtually unlimited growth potential. On the other hand, most of them look very expensive, with price-to-earnings (P/E) ratios above 30.
For cautious investors, these kinds of things can be nerve-racking. Fortunately, there are a few stocks in the generative AI space that are reasonably cheap, with small downside in a scenario where things go wrong. In this article, I will explore three such stocks, one of which is a born-and-bred Canadian AI company.
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Taiwan Semiconductor
Taiwan Semiconductor Manufacturing (NYSE: TSM) is one of the most important semiconductor companies in the AI space, perhaps second in importance after NVIDIA. Taiwan Semiconductor, also known as TSMC, manufactures AI chips, such as those designed by Apple, NVIDIA, Qualcomm, and others.
This prestigious book of business virtually guarantees that TSMC enjoys high revenue, as it did in its most recent quarter, in which it brought in $20.8 billion in sales. The company expects even more revenue growth in the third quarter, so this stock may be worth owning, even though it trades at more than 30 times earnings.
OpenText
OpenText (TSX: OTEX) is a Canadian enterprise software company. It develops various types of text-analysis software that it bundles together into “cloud suites.” These are text and data suites that companies can access in the cloud and use to analyze their businesses. They can do things like generate content, extract insights from text, and wrangle data. These are all crucial tasks in converting raw text into data and then into insights.
OpenText is one of the cheapest AI stocks out there. It trades at 7.72 times adjusted earnings, 1.46 times sales, two times book value, and 9.3 times operating cash flow. The reason for this cheap valuation is that OTEX had next to no growth historically. However, the company recently caught a growth spurt due to AI hype, which caused its revenue to rise 51%. We can’t be certain that this high growth will continue, but even if it decelerates to 10%, 7.7 times earnings is still pretty cheap.
Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), otherwise known as Google, is a U.S. tech company that is best known for owning the Google Search platform. It also owns Youtube, Gmail, Android, Google Cloud, and a number of hardware offerings.
Alphabet is well known for being the cheapest big U.S. tech stock. It trades at 28 times earnings, which makes it the only one of said companies to be below 30 times earnings right now.
Google was behind its competition in generative AI for some time, but it recently polished its Gemini AI offerings to the point where they’re now getting rave reviews.
Also, YouTube experienced excellent growth in the most recent quarter, and its overall earnings grew by 57%. This combination of growth and value is pretty rare, so Google may be worth the investment today.
