Think you've missed the boat on artificial intelligence (AI) stocks? There are still many good options out there. A lot of the hype has centered around popular stocks such as Nvidia and Palantir Technologies. But there are some compelling contrarian AI picks that investors have been discounting and overlooking.
One stock that looks especially appealing right now is Alphabet (GOOG 2.49%)(GOOGL 2.30%). It's a big name in AI, but many investors and analysts have been fearing that AI will actually hurt its business. The reality, however, is that Alphabet may end up being a big winner due to AI. And what's even better: The tech stock looks incredibly cheap.
Image source: Getty Images.
AI isn't destroying Alphabet's business; it may even help
A big concern many investors have about AI with respect to Alphabet is that users won't need to rely on Google Search anymore, which is at the core to the company's business. But it has adapted and incorporates the technology into its searches.
If you do a search on Google, there is now an AI overview that can give you answers similar to what you might get from a chatbot. It summarizes the results and even provides links to support its findings.
Alphabet does, after all, have its own chatbot, Gemini. A big advantage that it has over competing chatbots is a wealth of data from Google Search and YouTube to tap into. Plus, by integrating with Alphabet's varied services, including Gmail, Gemini can create a more seamless experience for users.
The company's revenue from Google advertising in the most recent quarter, which ended on June 30, totaled $71.3 billion, up 10% from the same period last year. And Alphabet's total revenue for the period rose by 14% to $96.4 billion.
AI is constantly changing and evolving, but investors shouldn't forget it has now been well over two years since ChatGPT emerged on the scene, and Alphabet's business is still doing just fine, with the technology actually enhancing its existing suite of products and services.
A breakup of the business could actually be great for investors
Another big risk that spooked investors is a possible breakup of the company. It has lost multiple antitrust cases, one involving its ad business and another involving search.
A breakup is a possibility, and if it does happen, some analysts believe that it could be a big win for investors. The value of Alphabet's businesses individually could add up to more than what the combined entity is worth today.
NASDAQ: GOOGL
Key Data Points
With cloud computing, search, video sharing, an AI chatbot, and robotaxi services, there are some terrific businesses within Alphabet's realm, and the stock trades at a fairly modest 21 times earnings, which is below even the S&P 500 average multiple of 25. Not only is it not trading at a premium, but it also looks to be valued at a discount.
The benefit for investors who buy today is that if a breakup doesn't incur, that uncertainty goes away and it may trigger a rally in the stock. And if it does happen, then you can end up owning a piece of all the businesses, which may add up to more than the stock's $2.3 trillion market cap today. And you can either continue to remain invested in all of them or sell off the pieces you don't want. Either way, it looks like a win-win, given how undervalued the stock is.
Alphabet is a no-brainer buy while it remains this cheap
Alphabet is a terrific stock to buy today. With so many great assets and businesses, it looks poised for much more growth. Buying it today, at just 21 times earnings, could prove to be a steal of a deal for long-term investors.
