The artificial intelligence (AI) boom has led the market to what others could argue is a bubble. With valuations going sky-high, who can blame them? The race for dominance has left investors buying anything that dabbles in the new technology. Screening the market for discounted AI stocks may take some time.
To address that problem, I’ll examine three undervalued AI companies. I screened for my list based on the minimum criteria below:
- Debt to Equity ratio of less than 0.5
- Current ratio (current assets/current liabilities) greater than two
- The company is in the software and semiconductor sector and strongly focuses on AI
- Positive upside based on the analysts’ high target price
- Positive EPS growth
These criteria ensure I don’t get hyped-up companies and only include those that can grow on their own merits and pay their short-term obligations for continued operations. I sorted all results based on their latest earnings growth, from lowest to highest.
CS Disco (LAW)
It is indisputable that AI’s potential impact can span different sectors. That is why companies like CS Disco (NYSE:LAW) get to take center stage, focusing on AI-powered legal products that help users simplify legal request processes, reviews and case management.
CS Disco’s product collects and processes enterprise information relevant to legal matters. Its main offerings include DISCO Hold for automated data preservation and DISCO Request for automating legal request compliance responses.
The company concluded FY’23 with solid results. Customer count increased by 9%. Also, its strong financial position sheet, with a 0.156 debt-to-equity ratio and an 8.3 current ratio, highlighted its strong financial standing despite modest revenue growth of 2% year-over-year (YOY).
Losses also came in at 38 cents a share, a 52.5% improvement over last year’s 80 cents. CS Disco’s promising outlook and upside of 100% make it one of the discounted AI stocks with the potential to grow exponentially.
UiPath (PATH)
As AI adoption grows, companies like UiPath (NYSE:PATH) that support enterprise automation and artificial intelligence get the spotlight. UiPath specializes in building and managing automation, allowing its clients to harness untapped opportunities to automate their processes at a scale. These can be done for minor tasks like reading emails and data movements or complex processes like cloud automation.
UiPath recently launched the addition of UiPath Autopilot to its platform, offering an AI assistant to assist with its client tasks. In addition, the company has also announced its new data center in India to support the growing demand for cloud services.
UiPath boasted strong revenue numbers for FY’24, increasing by 24% YoY, while GAAP gross margin reached 85%. Furthermore, there was a significant jump in EPS from negative 60 cents in FY’23 to negative 16 cents in FY2024, a growth of 73.33%.
In addition to its growing revenue numbers, UiPath’s debt-to-equity ratio of 0.465 and current ratio of 3.63 showcased its strong liquidity position and conservative capital structure to support a healthy balance of growth and stability.
The company’s growth prospects and high upside of 65% show how the market hasn’t gobbled up its room for growth yet.
Palantir Technologies (PLTR)
With humble beginnings from contracting with government agencies, Palantir Technologies (NASDAQ:PLTR) has come a long way in building its business empire. Its core business is focused on government work. Palantir builds software that helps government officials in investigations and operations against counterterrorism.
Its solutions offer unique functions, such as pattern identification with its Gotham software, platform controllers under Appolo software, central operating systems under Foundry and responsible AI under its AIP platform.
Palantir reported a strong FY’23 with 17% YOY revenue growth and adjusted EPS of 25 cents, a substantial improvement from last year’s 6 cents EPS, amounting to a 316% growth. Besides growth, the company boasts strong financial standing with debt, an equity ratio of 0.28, and a current ratio of 5.54.
Based on its high target price, analysts expect an upside of almost 61% in the next 12 months. Palantir’s current partnership with Oracle (NYSE:ORCL) cements its status as a global powerhouse in AI. So, if you are looking for discounted AI stocks, keep tabs on this one.
On the date of publication, Rick Orford did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
