Interest in artificial intelligence (AI) is at a fever pitch. That's understandable, considering the string of AI advances rolled out in recent months.
But there's a negative consequence of this fervor for investors: Share prices of several AI leaders have become considerably more expensive. There are some exceptions, though. Here are the five cheapest top AI stocks on the market right now (listed in alphabetical order).
1. Alibaba
Alibaba (BABA 0.64%) is a Chinese company with multiple internet businesses. It's a leader in e-commerce and cloud hosting, among other areas. The stock currently trades at less than 11 times expected earnings.
We could find out relatively soon if Alibaba's AI business will get a higher valuation from investors. The company plans to break up into six separate units. One of those units will be its cloud intelligence group, which will include cloud and AI services.
Alibaba has stated in the past that it's "in a unique position to develop large-scale commercial use of AI." It remains to be seen, though, if the break-up will expand or hinder its AI plans.
2. Alphabet
Alphabet (GOOG -1.96%) (GOOGL -1.97%) has long been a leader in AI, thanks to pioneering work from its DeepMind, Google Brain, and Waymo units. Even though its shares have jumped close to 20% year to date, Alphabet remains one of the more attractively valued AI stocks, with a forward earnings multiple of around 19.5.
Some investors are worried that Alphabet could lose ground to Microsoft and its partner, OpenAI, in the AI race. There have even been reports that Samsung could switch from Google Search to Microsoft's Bing as the default search engine on its smartphones because of Bing's AI integration.
However, it's probably not a good idea to underestimate Alphabet. The company has a lot of AI expertise, access to a treasure trove of data, and a huge cash stockpile at its disposal.
3. Baidu
While Alphabet dominates the search engine market throughout most of the world, Baidu (BIDU 0.72%) reigns as the search leader in China. It also ranks among the top AI innovators in the country with a rival to ChatGPT and plans to launch the world's biggest fleet of self-driving robotaxis this year.
Baidu stock appears to be a bargain, based on its forward price-to-earnings ratio of around 14. However, perhaps the biggest question mark for the company relates to its future growth prospects. This concern shows up in Baidu's high five-year price-to-earnings-to-growth (PEG) ratio of over 5.8.
4. IBM
IBM (IBM -8.25%) demonstrated the potential of AI years ago with its Watson technology. While the longtime tech giant has been overshadowed recently by OpenAI's ChatGPT, it's still in the thick of the AI race. As a case in point, biotech company Moderna announced earlier this month that it's teaming up with IBM to use quantum computing and AI to develop messenger RNA therapies.
Unlike most other leading AI stocks, IBM's shares have declined so far in 2023. But that's arguably made IBM even more appealing to value investors, with the stock now trading at a little over 13 times expected earnings. Income investors should also like the company's juicy dividend yield of nearly 5.3%.
5. Tencent Holdings
Which company holds the most AI-related patents worldwide? It's not Alphabet or IBM. Instead, the honor belongs to China's Tencent Holdings (TCEHY -0.94%).
Tencent is best known for its video games, which include top sellers such as Honor of Kings and PUBG. However, the company has a long list of other businesses focused on e-commerce, instant messaging, healthcare, and more.
The stock isn't as cheap as the others on our list, with a forward earnings multiple of nearly 20.3. However, that's still below many high-flying AI stocks. Also, Tencent's growth prospects make its valuation more attractive. Its PEG ratio is a low 1.06.
