Many companies are poised to benefit from the artificial intelligence (AI) boom next year -- and beyond. However, that doesn't make each and every AI expert a great investment today. The future prospects of this explosive tech trend have already been priced into some stocks, leaving little room for further stock-price gains.
I'm here to highlight a selection of AI companies with stocks that seem undervalued. These contenders offer a compelling mix of innovative promise and investment appeal, ripe for exploration. Don't be surprised to see some ultra-familiar household names, by the way. The titans of yesteryear are learning new tricks to stay competitive in the AI era.
IBM: Not your grandfather's Big Blue anymore
In the 1990s and early 2000s, International Business Machines (IBM -1.05%) set the standards for other technology titans to follow. But just as every IBM peer under the sun tried to copy its winning one-stop-shop business model, the company turned to a different path.
Many investors were surprised to see Big Blue abandon its unquestioned leadership to pursue a radically different strategy under CEOs Ginni Rometty and Arvind Krishna. The all-you-can-eat approach to technology solutions was replaced by a sharp focus on cloud computing and AI. Nowadays, IBM is where you find enterprise-class solutions for computing needs, powered by intelligent cloud computing designs and the Watson AI engine.
Leaving the consumer market to other vendors, IBM is now perfectly positioned to make the most of the AI boom. Enterprise customers may be slower on the uptake of new technologies, due to budget and operational testing concerns, but these customers also provide reliable revenue streams and generous profit margins.
Look for IBM's AI-driven sales to soar in 2024 and beyond. It's time to take full advantage of a strategy shift more than a decade in the making.
So far, investors have largely shrugged off IBM's promising AI position. The stock has gained just 14% in 2023, behind the 20% return of the S&P 500 (SNPINDEX: ^GSPC) index. Shares are changing hands at rock-bottom valuation ratios such as 12x free cash flow and 2.4x sales.
You even get a generous dividend yield of 4.2% at these modest prices. In short, IBM looks like a great AI investment right now.
Ericsson runs 5G networks with AI smarts
Telecom networks are becoming more powerful and complicated over time. If a 4G base station can manage roughly 1,000 simultaneous active connections from a single base station, 5G networks are designed to handle 100 times as many devices. Every connection expects download speeds in the gigabit-class and low latency (quick responses to every network request).
The telecom industry has come a long way from operators hand-plugging cables into switchboards. That's where Ericsson's (ERIC -1.15%) AI-powered network management platform comes into play.
With AI-powered analytics in real time, Ericsson's clients optimize their vast and complex networks. By utilizing advanced algorithms and machine learning, Ericsson's system can dynamically optimize network traffic, predict maintenance needs before they become critical issues, and ensure robust security against evolving threats.
AI's role in Ericsson's infrastructure is not just about maintaining efficiency -- it's about redefining what's possible in network performance. The AI-driven system allows for real-time analytics and decision-making, enabling the network to adapt quickly to changing user demands and traffic patterns. This leads to a more reliable, efficient, and user-centric network experience. And it wouldn't be possible without AI assistance.
Moreover, Ericsson's embrace of AI goes beyond operational efficiency. It's a strategic move that positions the company as a leader in the 5G arena, opening new opportunities for innovation and service delivery. From smart cities to the Internet of Things, Ericsson's AI-enhanced networks are at the forefront of enabling the next wave of digital transformation.
If you thought 5G networks were complex, just wait until the telecom industry shifts to the even faster, more robust, and far more complicated 6G architecture. Ericsson's groundbreaking AI usage in the 5G era sets the company up for continued success after the next sea change.
In essence, Ericsson's investment in AI is a testament to their commitment to leading the charge in the 5G revolution, ensuring they remain at the cutting edge of telecom technology. Finally, Ericsson's stock price has actually declined in 2023, and its shares trade at a comfortable 12x forward earnings estimates. That makes the Swedish company an undervalued AI winner in my book.
