When it comes to generative artificial intelligence (AI), it’s paid off to stick with the mega-cap tech titans. Those are most notably the Magnificent Seven stocks. It’s likely that the cohort will hold the winner (or some of the winners) of the AI revolution. However, I think there are plenty of reasons to consider some of the non-Magnificent Seven companies. This is true especially while their AI potential is being undervalued by Wall Street. That’s where these underappreciated stocks come into play.
Indeed, it’s easy to overlook the AI potential of the firms outside of the mega-cap tech spotlight. The Magnificent Seven are pouring tens of billions into generative AI initiatives. Furthermore, they seem to be sparing no expenses.
Thus far, we’ve gotten just a sample of what generative AI has to offer. In the next five years, look for such efforts to really start moving the needle. This will happen not just on share prices, but sales, margins, and, ultimately, profits. Here are three overlooked AI stocks that I believe investors are sleeping on.
Reddit (RDDT)
Reddit (NASDAQ:RDDT) reported its first earnings as a publicly traded company, and the results were impressive. Shares soared nearly 15% in the after-hours session to just shy of $57 per share. Indeed, the RDDT stock IPO boom and bust has come and gone. After an impressive showing, it seems like new entrants into the stock may be inclined to stick with the name for the long haul. This is true especially with the overlooked AI upside to be had in the social media firm.
For the March quarter, Reddit clocked in $243 million in revenue. This was up 48% year over year, comfortably ahead of the Wall Street estimates calling for closer to $214 million. Weekly active users soared 40% to 306.2 million. As a result, investors may wish to come for the growth and stay for the long-term AI prospects.
Data is a big deal when it comes to generative AI. And there is no better archive of people’s thoughts than Reddit. I view Reddit as sitting on a trove of invaluable data. This data can train the future’s most human-like conversational AI models.
With a $60 million-per-year licensing deal with Alphabet (NASDAQ:GOOG, GOOGL) to train Gemini, Reddit stands out as sporting one of the best datasets for firms seeking to train models. In a few years, count me as unsurprised if Reddit asks more than $60 million annually for its data. This is one of the most underappreciated stocks on the market.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) is a $200 billion semiconductor giant that I think could be every bit as magnificent as the Magnificent Seven. The stock is up a scorching 50% in the past six months, and new highs could be right ahead as the firm looks to find its way into the devices of an AI-enabled future.
Fellow InvestorPlace contributor David Moadel noted that QCOM stock is “a reasonably valued AI-hardware firm.” He also said that it has an “amazing track record.” Moadel is right on the money, in my opinion.
AI on the cloud gets all the love these days. That said, it may not be too long before on-device AI chip makers get a boost. On Tuesday, Apple (NASDAQ:AAPL) showcased some of its on-device AI capabilities with the M4 chip on the all-new iPad Pros. I was incredibly impressed and think more firms could follow in the iPad maker’s footsteps as consumers pay closer attention to neural processing units (NPU).
Qualcomm is no slouch, with the AI firepower in the Snapdragon X Elite’s NPU, which could give Apple’s Neural Engine a good run for its money as the next generation of hardware lands. You can see why this made our list of underappreciated stocks.
Deere (DE)
Finally, we have Deere & Company (NYSE:DE), a low-tech maker of tractors and other farming equipment. In recent years, the stock has gone flat, with some traders likely finished farming the stock (forgive the pun, please) for quick gains. Though the current agricultural cycle could stagnate for a while longer, I do think the next farming equipment boom could help reignite demand, the likes of which we may not have seen since late 2020.
Believe it or not, Deere has a tech team (Intelligent Solutions Group) that’s fully focused on advancing the technology in its equipment.
Over the years, Deere has also bought up some intriguing firms, ranging from computer vision startups (Blue River Technologies) to autonomous driving firms (Bear Flag Robotics) and even human-in-the-loop innovator SparkAI. Given all that Deere stands to gain from its AI investments, I think it makes sense to call Deere an agro-tech company or, perhaps in a few years, an autonomous farming enabler. If you are looking for underappreciated stocks, start here.
On the date of publication, Joey Frenette held shares of Deere and Apple. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
