The artificial intelligence (AI) boom, revolution, technological shift, generational surge, or whatever you want to call it, has been all over the headlines in the past two-and-a-half years or so. Indeed, the AI trade has had its fair share of breathers along the way. We just came off of one, followed by one of the swiftest and perhaps most-hated comeback rallies in recent memory. According to Fundstrat’s Tom Lee, the V-shaped bounce off the lows of the year seems even more hated than the one that followed the COVID crash.
Indeed, as you might imagine, AI stocks are not only heating up, but they’re also starting to get a tad on the blistering side, with valuations that are right back to (and in some cases, higher) than they were before the tariff-induced sell-off of 2025.
It’s tough to tell when the coast is clear, but as investors, it’s best to stay fully aware of the risks that could derail the rally and, perhaps more importantly, how we’ll react as self-guided investors should things take a sharp turn for the worse before the year concludes. Indeed, perhaps it’s more about how we handle the occasional market spill than the timing that separates good investors from great investors.
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The AI bull market is booming again!
Though AI stock valuations may be a tad out of reach for some, I think it’s worth gaining exposure if you, like seemingly few others these days, don’t have as many names that can rise on the back of the AI tailwind. Of course, some believe AI stocks are becoming overly inflated.
And while there are bound to be pockets of severe overvaluation (perhaps in the IPO market and certain multi-baggers that have rocketed higher of late), there are also pockets of fair valuation and even undervaluation. This piece will look at a name that I believe to be quite undervalued.
Alphabet: AI leadership at a discount?
Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) stock continues to be one of the most cost-effective ways to hop aboard the AI bandwagon. The stock’s latest relief rally has faltered, with the name still down just under 16% from all-time highs hit earlier this year. Indeed, the firm behind Google Search still seems to be leading the charge in terms of applied AI.
With Waymo, Alphabet’s autonomous robotaxis business, testing the roads out in Philadelphia and New York, the AI mega-cap and Magnificent Seven member may be on the cusp of a new, profitable business whose growth could help fuel a new wave of optimism.
I think robotaxis are closer to prime time than some others may think, and I view Alphabet’s Waymo as the frontrunner in the nascent market. Sure, there are still a lot of regulatory hurdles to pass, but patient investors have plenty of reason to wait for them to be cleared as the firm’s impressive tech takes the driver’s seat. Of all the robotaxi firms out there, Waymo has to be my top pick for market domination. Alphabet has been hard at work on the tech for many years, and its track record, I think, will speak for itself.
In any case, I’d view the latest correction in GOOG stock as a great time to get in if you haven’t yet done so. At 19.0 times forward price to earnings (P/E), you’re getting a cash cow of an AI titan for far less than a market multiple. That’s a deal that sounds too good to pass up!
