Wall Street is a stomping ground for innovation. But for three decades, multiple next-big-thing innovations have come and gone without rivaling what the advent of the internet brought to the table for corporate America in the mid-1990s. The rise of artificial intelligence (AI) has the potential to be a renaissance moment for businesses.
When referring to AI, I'm talking about the use of software and systems to oversee tasks that humans would typically handle. The ability to train these systems and allow them to learn and evolve over time is what gives AI utility in practically every sector and industry.
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To be fair, history has shown that every next-big-thing trend over the past 30 years (including the rise of the internet) has endured an early-stage bubble. The AI revolution, no matter how robust growth estimates may seem, is unlikely to buck this trend. But this doesn't mean long-term winners can't be found, especially those that would be somewhat insulated to the downside if the AI bubble burst (i.e., not Nvidia).
What follows are three historically cheap AI stocks you can confidently buy in April and hang onto for years, if not decades, to come.
Baidu
The first AI stock that represents a screaming bargain in April is China-based Baidu (BIDU 5.97%).
One of the reasons Baidu would be just fine if history repeats itself and the AI bubble bursts is its leading internet search engine. In February, Baidu commanded a 60.1% share of China's internet search, according to GlobalStats. Looking back through nine years of monthly internet search share reveals that, with few exceptions, Baidu has consistently accounted for between 60% and 85% of China's market. This makes it the logical go-to for businesses wanting to target consumers with their message(s) and should afford the company ample ad-pricing power.
To add to the above, China's economy is still in the process of finding its footing following the COVID-19 pandemic. Regulators abandoned the controversial "zero-COVID" mitigation strategy in December, and China's economy is still reeling from supply chain challenges. As the country distances itself from the worst of the pandemic, its economic growth rate (and advertising spending) should reaccelerate.
Baidu's ties to the AI revolution can be found in its faster-growing, non-online marketing segment. Specifically, Baidu's AI Cloud was the fourth-largest cloud-infrastructure service platform by spend in China as of March 31, 2023. Baidu plans to incorporate generative AI solutions in its AI Cloud that'll allow businesses to build applications and improve customer interactions.
Furthermore, Baidu is the parent of intelligent-driving company Apollo Go, the most-successful, autonomous ride-hailing service on the planet. Baidu's fourth-quarter operating results note that Apollo Go surpassed 5 million cumulative rides since its inception.
Despite the added regulatory risks that come with investing in China stocks, Baidu is a steal for opportunistic investors. Shares can be picked up right now for less than 9 times forward-year earnings -- and this doesn't take into account the more than $17 billion in net cash (nearly half of Baidu's current market cap) the company has after accounting for loans and various convertible/payable notes on its balance sheet.
Meta Platforms
A second historically cheap AI stock that's begging to be bought by long-term-minded investors in April is none other than social media juggernaut Meta Platforms (META -2.96%).
Though Meta has invested aggressively in the future of AI (a point I'll touch on in a moment), it would be perfectly fine if history holds true to form and AI stocks work their way through an early-stage bubble. That's because Meta owns the most-visited social media real estate in the world.
During the December-ended quarter, Facebook attracted 3.07 billion monthly active users (MAUs), which is more than any other social media site globally. Adding in other popular sites, including Instagram, WhatsApp, and Threads, yields 3.98 billion MAUs visiting its ecosystem. Having access to this many eyeballs provides an insatiable lure for advertisers. In 2023, just shy of 98% of Meta's $134.9 billion in net sales came from advertising.
However, CEO Mark Zuckerberg hasn't been afraid to invest in the company's future -- even if the realization of sales for these investments could be years away. His team is developing augmented and virtual reality devices, building out a variety of metaverse solutions that can make Meta a key on-ramp to 3D virtual environments, and introducing generative AI solutions that can tailor advertisements to customers.
The fuel that makes this possible is Meta Platforms' enviable war chest. The company ended 2023 with $65.4 billion in cash, cash equivalents, and marketable securities, and generated north of $71 billion in net cash from operations. No social media company has the financial flexibility to take chances quite like Meta.
The cherry on top is that Meta Platforms remains historically cheap. Even though shares have more than quintupled in value following the 2022 bear market, Meta stock can be scooped up right now for just 13 times estimated forward-year cash flow. That's about an 11% discount to its trailing-five-year multiple to cash flow.
Image source: Getty Images.
Alibaba
The third historically cheap artificial intelligence stock you can confidently buy in April is China's leading e-commerce company Alibaba (BABA 1.02%).
Keeping with the theme of this list, Alibaba is well positioned to ride out the storm if the AI bubble were to burst. The reason Alibaba can thrive is the company's top e-commerce assets. According to a report released in April 2023 by the International Trade Administration, Alibaba's Taobao and Tmall accounted for 50.8% of e-commerce share in China.
Though online retail sales tend to generate relatively low margins, e-commerce is still in its earlier innings of growth in China, compared to the United States. China's burgeoning middle class, coupled with the country's historically fast growth rate, suggests e-commerce can be a long-term profit driver for Alibaba.
But it's Alibaba Cloud that should have investors talking. As of March 2023, estimates from tech-analysis firm Canalys found that Alibaba Cloud was No. 1 in China, with 34% of cloud-infrastructure service share. Alibaba is allowing customers access to generative AI solutions on its leading cloud platform which are designed to help businesses build applications.
Also keeping with the theme, Alibaba has a boatload of cash at its disposal. When the curtain closed on 2023, Alibaba was sitting on $92 billion in cash, cash equivalents, and various investments. That's about half of Alibaba's current market cap. Aside from using this capital to initiate share buybacks, this cash gives Alibaba the flexibility to aggressively invest in its cloud platform and AI initiatives.
To round things out, Alibaba is cheaper than it's ever been as a publicly traded company. Shares can be purchased for a little over 8 times forward-year earnings, or closer to a multiple of 4 if you back out the company's exorbitant cash pile.
