Artificial intelligence may very well take over the world. However, like anything in the market, excessive hype can push valuations ahead of the sector. That appears to have been the case recently regarding the tech sector meltdown. Suddenly, the CBOE Volatility Index or VIX screamed higher, indicating fear in the market. But that could present a viable opportunity for generative AI stocks.
As Bloomberg mentioned earlier this year, the entire generative AI ecosystem could be worth $1.3 trillion by 2032. According to Grand View Research, the global sector for machine intelligence reached a valuation of $13 billion last year. In addition, between 2024 and 2030, the segment could expand at a compound annual growth rate (CAGR) of 36.5%. At the culmination point, the industry specifically may generate revenue of $109.37 billion.
Plus, at the rate that enterprises are investing in machine intelligence, these projections could be understated. With that in mind, intrepid contrarians may consider picking up these compelling generative AI stocks.
Adobe (ADBE)
One of the biggest software companies in the world, Adobe (NASDAQ:ADBE) wide-ranging solutions for the business ecosystem. In particular, it specializes in solutions for creatives. The company has now integrated machine intelligence in its Creative Cloud suite, bringing a new layer of enhancements to users. It’s never been easier to create new works of art, making Adobe one of the top generative AI stocks to consider.
Financially, the company isn’t the most exciting entity out there. Nevertheless, what I appreciate is that it consistently delivers the goods. In the past year since its fiscal second quarter, Adobe posted an average earnings per share of $4.25. This figure beat out the consensus estimate of $4.14, yielding an earnings surprise of 2.58%.
To be sure, ADBE stock is on the pricey end relative to other infrastructure software companies. It trades at 11.98X trailing-year sales. However, that’s below the prior year’s running average of 13.11X. Plus, the market has previously accepted a multiple of nearly 15X.
Considering that analysts anticipate 20% growth on the top line to $21.46 billion, ADBE is one of the contextually undervalued generative AI stocks to consider.
Alphabet (GOOG, GOOGL)
A company that needs no introduction, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) represents a strong candidate for generative AI stocks. In particular, the company is developing its chatbot Gemini (which used to be called Bard). Unfortunately, the chatbot itself is complete crap, if I may be honest. However, the potential to integrate the most up-to-date information via the Google ecosystem may give Geminin a projected edge.
In the meantime, investors can depend on the resilience and dependability of one of the biggest tech juggernauts. Financially, in the year since Q2 2024, Alphabet posted an average EPS of $1.74. This figure beat out the consensus view of $1.60, yielding an earnings surprise of 9.48%. The massive beat in Q1 was a standout.
Right now, shares trade hands at 6.27X trailing-year revenue. That’s not bad considering that the running average in the prior year comes in at 6.34X. Also, throughout Q2, the multiple stood at 7.24X. That means GOOGL stock has a chance to grow into its prior valuation.
Analysts are expecting just that, with fiscal 2024 sales projected to rise 13% to $347.34 billion. It’s one of the generative AI stocks to put on your watchlist.
Intel (INTC)
There’s really no getting around how ugly chip manufacturer Intel (NASDAQ:INTC) is. For its Q2 earnings report, the company posted EPS of two cents. However, analysts were looking for 10 cents, thus incurring a negative surprise of 80%. Obviously, that wasn’t what investors had in mind. Combined with mass layoffs, stakeholders simply abandoned ship on INTC stock.
It’s understandable. Although the company enjoyed some prior successes, Wall Street is in a show-me mode, especially for questionable enterprises. Further, analysts are now adjusting down their expectations. For fiscal 2024, the consensus view for revenue sits at $52.32 billion. That’s down 3.5% from last year’s print of $54.23 billion.
So, it’s an ugly situation. However, as the market absorbs the new reality, INTC stock suddenly looks more intriguing from a speculative viewpoint. For example, shares now trade at 0.73X book value. Roughly speaking, in the past year, the running average was around 1.7X to 1.8X.
Moreover, in fiscal 2025, analysts are anticipating a slow road to recovery. Consensus sales call for $56.4 billion, with the high-side estimate standing at $60.49 billion. It’s risky but it could be one of the generative AI stocks on discount.
Intuit (INTU)
Accounting and tax software firm Intuit (NASDAQ:INTU) makes for an intriguing case for generative AI stocks. With more people participating in the gig economy, tax preparation will become more important since gig workers (i.e. independent contractors) are essentially taxed as businesses. That means the underlying work is more complicated, which suits Intuit just fine.
What’s more, questions always arise regarding different tax protocols. With generative AI, Intuit’s programs can address inquiries and pain points on the spot. Over time, as the technology improves, it’s quite possible that the company can disrupt the human side of tax preparation. Why pay all that money for advice when you can have all your inquiries answered immediately?
Right now, INTU stock seems to be quite a deal. Shares trade hands for only 0.73X book value. In the past year, the average stood at around 1.78X. To be fair, analysts see sales dipping about 3.5% this year to $52.32 billion. I have doubts about this, to be frank. However, in fiscal 2025, sales could rise to $56.4 billion. The high-side estimate calls for $60.49 billion, making INTU a must-watch idea.
SentinelOne (S)
An emerging name in the cybersecurity realm, SentinelOne (NYSE:S) utilizes machine intelligence for detecting threats and preventing data breaches. The company utilizes advanced AI models that analyst a wide range of data in real time, identifying and responding to security threats autonomously. Given the increased frequency and cost of cyberbreach incidents over the years, SentinelOne ranks among the most relevant generative AI stocks to consider.
In fact, one of the concerns about AI is that nefarious agents can use the innovation to spread malware. Digital intelligence can also cut the learning curve for would-be hackers. Therefore, it’s imperative that cybersecurity enterprises stay ahead of the curve. That puts SentinelOne in the driver’s seat.
Right now, shares trade at 9.7X sales. To be blunt, that’s quite high relative to other enterprises in the infrastructure software space. However, in the past year, the running average stood at 10.57X. In the three months ended Jan. 31, 2024, the metric soared to 13.58X. So, S stock could rise to its prior valuation.
Analysts are looking for this dynamic to play out, anticipating revenue to land at $812.47 million. If so, that would imply a growth rate of 30.8%.
Lantronix (LTRX)
Based in Irvine, California, Lantronix (NASDAQ:LTRX) falls under the communication equipment industry. Primarily, the company is involved in the Internet of Things, along with the securing of data communications. Lantronix utilizes AI to enhance edge computing services and real-time data processing. With its acumen, the company aims to improve automated functionalities and bring efficiencies in IoT applications.
Fundamentally, LTRX represents one of the most relevant ideas among generative AI stocks. Even better, the company consistently brings home the goods. In the past year since Q1, the company’s average EPS came in at 8 cents. This exceeded the expected average earnings of 7 cents per share.
What’s more enticing, LTRX stock trades at only 0.92X sales. In contrast, the underlying industry runs an average multiple of 1.42X. Further, in the trailing year, the company’s average multiple stood at 1.24X. Thus, LTRX may have some room to grow.
In addition, analysts are targeting sales this fiscal year to hit $160.49 million. That’s up 22.3% from last year’s print of $131.19 million, making the valuation all the more attractive.
Aeva Technologies (AEVA)
Technically operating under the infrastructure software industry, Aeva Technologies (NYSE:AEVA) is a key player in the autonomous driving space. The company develops lidar sensors for autonomous vehicles while also developing AI systems that can interpret complex three-dimensional data. This innovation allows automated systems to make necessary adjustments for collision avoidance and other critical functions.
As exciting as AEVA stock is, it must be stated that the underlying business is risky. Primarily, it’s not profitable and it may not be for some time. However, the company has been beating its quarterly revenue targets quite soundly since missing in Q3 2023.
To be sure, AEVA stock remains extremely elevated in terms of its valuation. Right now, shares trade at 21.87X sales, which helps explain some of the hesitation surrounding the company. That said, the multiple previously stood at well over 50X on average in the past year.
Finally, analysts anticipate massive growth this year, with sales potentially reaching $8.64 million. If so, that would imply a doubling from last year’s print of $4.31 million. In addition, fiscal 2025 revenue could skyrocket to $22.67 million, with a high-side view of $32.5 million. This is one of the generative AI stocks to keep on your radar.
On the date of publication, Josh Enomoto did not have (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
