Artificial intelligence (AI) is transforming many businesses and creating some fantastic growth opportunities along the way. And if you've got $5,000 that you can afford to invest right now, businesses involved with AI can potentially make for ideal investments to hang on to for the long term.
But the problem is that if you're looking at many top AI stocks right now, they're trading at obscene valuations, which can make it discouraging to invest in them. That said, there are some potential deals out there. Three business involved in AI that are trading at relatively cheap valuations are Alibaba Group Holdings (BABA 0.59%), Cisco Systems (CSCO -0.50%), and eBay (EBAY 1.32%).
1. Alibaba Group Holdings
Alibaba has made for a pretty underwhelming investment this year, as the Chinese tech stock is down around 6% since January. It's also trading at less than 20 times its trailing profits, in line with the S&P 500 average, and isn't an expensive stock at all; Nvidia, by comparison, is trading at a multiple of more than 100.
Alibaba is a top name in Chinese e-commerce and cloud computing, and earlier this year it announced its own chatbot, Tongyi Qianwen. It is going to be part of Alibaba's products and services, and it can help with many of the things users rely on ChatGPT for -- writing emails, getting recommendations on where to travel, and so on.
In its most recent quarterly results, Alibaba reported revenue of $32.3 billion for the period ending June 30, which was up 14% year over year. An improving Chinese economy this year helped the company's e-commerce business deliver strong results, as revenue from Taobao and Tmall rose by 12%.
The risk with Alibaba is largely geopolitical, as well as what (if any) role the Chinese government may play in potentially impeding or restricting its growth opportunities in the future. That is a big part of the reason the stock doesn't trade at a higher multiple than it does, and it's a risk that investors shouldn't overlook.
But I'm also inclined to believe that the government won't want to hinder one of its top international companies. It's a bit of a contrarian investment, but investing $5,000 into Alibaba, especially now at its modest valuation, could prove to be a great move for investors over the long haul.
2. Cisco Systems
Tech company Cisco can also make for an attractive place to invest $5,000 into today, as it could be on the cusp of some strong growth opportunities. It made headlines last month, announcing that it was going to acquire data analytics company Splunk for approximately $28 billion. It's a big move for the tech company, as it can help Cisco offer businesses a more comprehensive solution to cybersecurity. While today it offers many products such as routers and firewalls to connect to the internet and stay safe, the acquisition can also help it prevent threats.
Cisco says the companies will be able to "drive the next generation of AI-enabled security and observability." Splunk is involved in data analytics and monitoring big data. Adding that into the fold will enable Cisco to add another layer to its product offerings by using AI to help identify threats ahead of time.
Shares of Cisco are trading for less than 18 times the company's earnings. That's a fairly low multiple, given the company's growth prospects surely look better with the acquisition of Splunk. Cisco has already been a fairly strong business, posting earnings of at least $10 billion in each of its past four fiscal years. Now, with AI potentially setting it up for even more growth, this could be one of the better bargains in tech right now.
3. eBay
E-commerce giant eBay might not strike you as a typical AI stock, but it would be a mistake to discount its potential in next-gen technologies. This is another stock that can be a good place to invest $5,000, as it may not be such an obvious AI play, and thus could be an underrated buy.
Last month, the company introduced a "magical" listing tool that can make the listing process as simple as uploading an image. When a seller uploads an image, the tool can then not only populate a title and description for it, but it can even suggest a price and shipping cost. The company sees it as being a popular tool, particularly with new sellers who may not be as familiar with the listing process.
Getting more people using its platform and providing more information to buyers can help eBay benefit from greater traffic and more revenue in the long run. Although eBay is not making AI chips like Nvidia, it can still benefit in a big way from AI, as chatbots such as ChatGPT can be ideal shopping assistants.
There is more competition for e-commerce these days, but eBay remains a top player, with more than 130 million active buyers using its platform. And through the first six months of this year, it reported over $5 billion in revenue, which is up a modest 3% year over year. Although that's not a huge growth rate, it's impressive nonetheless amid inflation and challenging economic conditions.
At 19 times earnings, eBay is another good value pick, as it's a potentially underrated AI stock to buy.
