Artificial intelligence (AI) has been the driving force behind the current bull market. Big tech is spending hundreds of billions of dollars to build out infrastructure as just about every business looks into the potential to use generative AI to improve its products and operations. Investor excitement over potential earnings growth has led many AI stocks to soar over the last few years.
That could leave many investors who are just starting out feeling like they've missed the boat on AI stocks. And if you're starting with just $200, you may feel like there really aren't a lot of stocks you could buy. While many brokers now support fractional share purchases, buying at least one full share of a company can make you feel like a true owner and investor.
But not every AI stock has climbed well above $200 per share. The three stocks featured here not only have a share price below that threshold, but they all offer great value for investors, whether they're just starting out or they've been at it for a while.
Image source: Getty Images.
1. Marvell Technology
Marvell Technology (MRVL +2.02%) is the company behind custom AI accelerator designs from Amazon and Microsoft. It also makes specialized chips for several other big tech companies and data center networking chips. As a result, it's seen strong revenue growth as big tech spends heavily on building out new data centers and outfitting them with silicon.
Marvell grew revenue 58% year over year in the second quarter to over $2 billion, with a non-GAAP (adjusted) gross margin of 59.4%. Data center revenue climbed 69% year over year, showing strength in its custom AI accelerator business. As a result, the company is producing substantial earnings growth, with non-GAAP earnings per share (EPS) up 123%.
NASDAQ: MRVL
Key Data Points
But management had some disappointing news for investors, too. Its outlook for the third quarter came in below expectations. The guidance created fear among Wall Street analysts that Marvell's share of Amazon's next-generation chips may decline and its Maia chip for Microsoft could be pushed out later into 2026 or early 2027.
On the other hand, it may just be a short-term bump as Amazon adjusts its order volume to match its ability to build out physical data centers. Marvell's Maia chip could be a huge revenue boost next year (or whenever it launches), and the long-term trend for custom AI accelerators and adjacent chips (like networking) remains strong. With the stock trading for just $63 a share after its earnings report, it's valued around 22.5 times forward earnings estimates. That's an incredible price to pay for a company growing as quickly as Marvell, even if there is some increased uncertainty.
2. Palo Alto Networks
Palo Alto Networks (PANW 0.16%) provides cybersecurity products to enterprises. While it specializes in physical firewalls, it's rapidly growing its software-based solutions, as it executes on its strategy to "platformize" its customers.
Last quarter, the company saw its next-generation security (NGS) annual recurring revenue climb 32% year over year to $5.6 billion. A growing number of customers adopted the platform, and existing customers spent more. Its net retention ratio was 120%. Management expects to roughly double its NGS customers over the next five years and nearly triple its annual recurring revenue.
As one of the largest cybersecurity companies in the world, Palo Alto benefits from its scale. As enterprises look to consolidate their security solutions, Palo Alto is one of the few companies that can provide an entire suite fulfilling every need they have. Moreover, the company's scale also means it collects more data, which it can feed to its AI algorithms. That makes it better at identifying threats and stopping them, which, in turn, makes its products more appealing to new customers.
NASDAQ: PANW
Key Data Points
As Palo Alto Networks shifts to more software-based solutions, it's experiencing strong operating leverage. Operating margin expanded 150 basis points year over year last quarter, and earnings per share grew 18% on 16% revenue growth. With expectations for software sales to drive revenue growth going forward, investors should expect to see net income growth outpace sales growth.
Shares of Palo Alto Networks trade around $190 per share as of this writing. That gives it an enterprise value of less than 12 times analysts' expectations for sales over the next 12 months. That's a fair price to pay for one of the leading cybersecurity companies on the market.
3. Applied Materials
Applied Materials (AMAT +4.26%) supplies wafer fabrication equipment to chip foundries. It makes a wide variety of equipment instead of specializing in just one area, which makes it less vulnerable to changes in demand or if a customer switches to a new supplier for some equipment. (At least it can keep some of the business.)
As chip designs become increasingly complex, the demand for Applied's machines has been strong. It saw 8% revenue growth last quarter while expanding its gross margin by 150 basis points. That was driven by both demand for higher-margin products and price increases, which points to the strength of Applied's equipment.
NASDAQ: AMAT
Key Data Points
However, management disappointed investors with guidance for next quarter. It expects a decline in revenue due to a pullback in ordering from China and "non-linear demand" from a leading-edge customer. After seeing sales grow significantly in China for the last two years, it was only a matter of time until Chinese companies pulled back on building out their foundries. Intel may also negatively impact revenue in the short-term, as the new CEO plans to pullback on spending without a major customer aside from itself.
But the long-term opportunities for the leading silicon equipment manufacturer remain strong. Analysts and the leading foundry expect significant growth in demand for chips through the end of the decade, and Applied's equipment is essential to fulfilling that demand. A short-term pullback from a few customers is the price investors pay for investing in a concentrated and cyclical industry.
With shares trading around $160, investors are paying just 17 times forward earnings estimates. While Applied won't exhibit the same level of growth as other AI stocks, it offers a lot more upside at this price than downside.
