The artificial intelligence (AI) boom is getting a little long in the tooth, with industry front-runners like Nvidia (up 230% year to date) seeing their stock prices soar to astronomical levels. But Alphabet (GOOGL 10.22%) (GOOG 9.96%) and Adobe (ADBE 0.87%) could make great options for more value-conscious investors. Let's dig deeper to find out why.
1. Alphabet
Up by 48% year to date, Google's parent company, Alphabet, has performed well in 2023. And while it hasn't reached the eye-watering valuation of Nvidia, the technology giant's more reasonable price tag and potential to weave AI-related technologies across its business empire position it for continued long-term success.
With a 93% market share in internet search, addressing the threats (and opportunities) presented by generative AI is crucial to Google's success. To protect its economic moat, Alphabet has invested heavily in its Bard chatbot, a direct rival to OpenAI's ChatGPT. The company is also using AI to improve its Google search platform -- adding features such as text-based query responses and AI-powered article summaries.
Image source: Getty Images.
AI also has the potential to revolutionize Alphabet's fast-growing cloud-computing business. The company now offers its purpose-built A3 supercomputer, designed to help other companies build and train their own AI models. This exposure to the pick-and-shovel side of the AI gold rush could help boost revenue and diversify Alphabet's business model.
With a forward price-to-earnings (P/E) multiple of just 23, Alphabet has a lower valuation than the S&P 500 average of 25, making it an excellent pick for value-focused investors.
2. Adobe
With Adobe's shares up by a whopping 58% in 2023, the market has shown optimism in its potential use of AI technology to help revolutionize the creative industry. The software giant's stable business model and reasonable valuation are icing on the cake for investors.
Over the last few decades, Adobe has transformed itself into an essential for creative professions through a suite of creative tools ranging from image processing platforms like Photoshop and Lightroom to video-editing software Premiere Pro. The company uses a software-as-a-service (SaaS) model, where customers pay a recurring fee, helping to stabilize its revenue. Now, Adobe is rolling out generative AI tools to expand its services while protecting its moat against competition.
In March, the company launched Firefly, a generative AI platform designed to allow users to generate and edit images with text commands. This technology synergizes well with Adobe's existing products, and as the technology develops, it could be implemented in a wider range of applications (such as video editing and animation).
With a price-to-earnings (P/E) multiple of 30, Adobe's valuation is higher than the S&P 500's average, but the shares are significantly cheaper than AI alternative Nvidia, which has a forward P/E of 60.
Bang for your buck
Alphabet and Adobe are great stocks for investors who are bullish about artificial intelligence but balk at the astronomical valuations of some of the industry's front-runners. Both companies enjoy reliable, diversified revenue streams and can incorporate the new technology in many different business verticals. While their shares have already performed well in 2023, their long-term growth could be just getting started.
