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Welcome to Episode #371 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
NVIDIA recently reported earnings and the company talked about the “AI revolution.” Stock investors are eager to get into this trade, but the stocks have rallied big over the last year.
If you’re a value investor, you may be on the sidelines thinking that all of the AI stocks are just too expensive to even consider. But Tracey believes ALL investors should have some exposure to this new industry. However, that doesn’t mean she thinks you need to buy an expensive stock to get it.
Trees don’t grow to the sky and no stock goes higher for forever. Even the mighty NVIDIA has had pullbacks and sell-offs in the last year during its incredible rally. There have been buying opportunities.
Value investors should look for pullbacks and sell-offs in these stocks. They always come.
What’s an “AI Stock”?
There are companies in several different industries that are currently considered “AI stocks.” The most well known is in the chips. NVIDIA has a lock on that market, for now.
But those chips go into data centers. Companies that are involved in the build-out, or servicing, of the data centers are also “AI stocks.”
And then there are the companies doing business in generative AI. These are the companies using all that data that is at the data centers.
It takes a lot of electricity and other utilities, like cooling, to keep the data centers operational so there are “old economy” companies that are now “AI stocks.”
And it won’t stop there. The AI industry will expand as the ecosystem builds out. But, for now, these are the most prominent areas to invest in.
Modine Manufacturing has been involved in thermal management since 1916. Talk about “old economy.” In fiscal 2024, Modine’s data center business increased 69% year-over-year.
Shares of Modine Manufacturing have soared 61% year-to-date but it’s still attractively priced, with a forward P/E of just 27.
Should a mid-cap company like Modine Manufacturing be on your AI stock watch list?
Eaton is in power management. Founded in 1911, it has paid dividends every year since 1923. That’s as “old economy” as you can get.
But shares of Eaton are up 36% year-to-date to new highs as it’s now an AI stock. It’s not cheap, however. Eaton trades with a forward P/E of 32 and a P/S ratio of 5.7.
Should power management companies like Eaton be on your watch list?
Alphabet is known for advertising and for some of its products like YouTube. It has been deploying generative AI to roll out new products, including on Google Search.
Shares of Alphabet are up 21.8% in 2024 to new all-time highs. However, Alphabet remains one of the more attractive AI stocks due to its low P/E. No, Alphabet isn’t trading under 15x earnings, but it’s still attractive at 23x.
Could Alphabet be one of the cheapest of the AI stocks?
Microsoft was among the first to roll out generative AI features in its products. As a result, investors have pushed up the stock to new highs. Microsoft shares have gained 7.9% year-to-date, but are off recent highs.
Microsoft is expensive at these levels. It is trading with a forward P/E of 35. But another indicator of value, its price-to-sales ratio, is also at sky-high levels at 13.5. A P/S ratio over 10 is considered high.
Should Microsoft still be on your watch list at these valuations?
Super Micro Computer provides service and storage solutions in cloud and data centers. It’s been one of the hottest AI stocks of the last year. Shares of Super Micro Computer are up 172% year-to-date.
But shares have pulled back over the last 3 months. Super Micro Computer has fallen 14.6% during that period. And while it trades with a forward P/E of 35, because of its incredible growth, Super Micro Computer has a PEG ratio of just 0.7. A PEG ratio under 1.0 usually indicates a company has both growth and value.
Is this weakness a buying opportunity in Super Micro Computer?
What Else Should You Know About Cheap AI Stocks?
Tune into this week’s podcast to find out.
[In full disclosure, Tracey owns shares of MSFT and GOOGL in her personal portfolio. Zacks Value Investor owns MOD.]
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The Cheapest AI Stocks to Buy Now
Welcome to Episode #371 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
NVIDIA recently reported earnings and the company talked about the “AI revolution.” Stock investors are eager to get into this trade, but the stocks have rallied big over the last year.
If you’re a value investor, you may be on the sidelines thinking that all of the AI stocks are just too expensive to even consider. But Tracey believes ALL investors should have some exposure to this new industry. However, that doesn’t mean she thinks you need to buy an expensive stock to get it.
Trees don’t grow to the sky and no stock goes higher for forever. Even the mighty NVIDIA has had pullbacks and sell-offs in the last year during its incredible rally. There have been buying opportunities.
Value investors should look for pullbacks and sell-offs in these stocks. They always come.
What’s an “AI Stock”?
There are companies in several different industries that are currently considered “AI stocks.” The most well known is in the chips. NVIDIA has a lock on that market, for now.
But those chips go into data centers. Companies that are involved in the build-out, or servicing, of the data centers are also “AI stocks.”
And then there are the companies doing business in generative AI. These are the companies using all that data that is at the data centers.
It takes a lot of electricity and other utilities, like cooling, to keep the data centers operational so there are “old economy” companies that are now “AI stocks.”
And it won’t stop there. The AI industry will expand as the ecosystem builds out. But, for now, these are the most prominent areas to invest in.
5 of the Cheapest AI Stocks to Buy Now
1. Modine Manufacturing (MOD - Free Report)
Modine Manufacturing has been involved in thermal management since 1916. Talk about “old economy.” In fiscal 2024, Modine’s data center business increased 69% year-over-year.
Shares of Modine Manufacturing have soared 61% year-to-date but it’s still attractively priced, with a forward P/E of just 27.
Should a mid-cap company like Modine Manufacturing be on your AI stock watch list?
2. Eaton Corp. (ETN - Free Report)
Eaton is in power management. Founded in 1911, it has paid dividends every year since 1923. That’s as “old economy” as you can get.
But shares of Eaton are up 36% year-to-date to new highs as it’s now an AI stock. It’s not cheap, however. Eaton trades with a forward P/E of 32 and a P/S ratio of 5.7.
Should power management companies like Eaton be on your watch list?
3. Alphabet Inc. (GOOGL - Free Report)
Alphabet is known for advertising and for some of its products like YouTube. It has been deploying generative AI to roll out new products, including on Google Search.
Shares of Alphabet are up 21.8% in 2024 to new all-time highs. However, Alphabet remains one of the more attractive AI stocks due to its low P/E. No, Alphabet isn’t trading under 15x earnings, but it’s still attractive at 23x.
Could Alphabet be one of the cheapest of the AI stocks?
4. Microsoft Corp. (MSFT - Free Report)
Microsoft was among the first to roll out generative AI features in its products. As a result, investors have pushed up the stock to new highs. Microsoft shares have gained 7.9% year-to-date, but are off recent highs.
Microsoft is expensive at these levels. It is trading with a forward P/E of 35. But another indicator of value, its price-to-sales ratio, is also at sky-high levels at 13.5. A P/S ratio over 10 is considered high.
Should Microsoft still be on your watch list at these valuations?
5. Super Micro Computer, Inc. (SMCI - Free Report)
Super Micro Computer provides service and storage solutions in cloud and data centers. It’s been one of the hottest AI stocks of the last year. Shares of Super Micro Computer are up 172% year-to-date.
But shares have pulled back over the last 3 months. Super Micro Computer has fallen 14.6% during that period. And while it trades with a forward P/E of 35, because of its incredible growth, Super Micro Computer has a PEG ratio of just 0.7. A PEG ratio under 1.0 usually indicates a company has both growth and value.
Is this weakness a buying opportunity in Super Micro Computer?
What Else Should You Know About Cheap AI Stocks?
Tune into this week’s podcast to find out.
[In full disclosure, Tracey owns shares of MSFT and GOOGL in her personal portfolio. Zacks Value Investor owns MOD.]