You don't necessarily have to pay sky-high premiums to invest in stocks with AI exposure. While many AI infrastructure plays trade at questionable valuations, these three technology stocks are trading at extremely attractive valuations now, and all are benefiting from their growing infusion of AI into real-world applications.
AI will enhance the value of PTC's software
A digital revolution is underway in the industrial sector, where manufacturers are integrating the digital world into their physical processes to enable continuous analysis of their systems, which in turn helps them to discover actionable insights. PTC's (PTC +0.40%) software is crucial to that entire process, from the initial design phase through the product's lifecycle to its servicing and ultimate disposal.
NASDAQ: PTC
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Instead of a one-time product design and a static manufacturing process, often accompanied by inaccurate estimates of servicing requirements, manufacturers can utilize PTC software to continuously monitor and improve their processes through digital analysis.
PTC's software is a powerful enough offering, and it's only going to get stronger as AI-powered deep learning and machine learning improve the quality of the insights it produces. And the company is increasingly embedding AI into its solutions.
It has already been growing its recurring revenue at high single-digit percentage rates and its free cash flow (FCF) at mid-teens percentage rates. Yet it trades at less than 21 times its expected 2026 FCF. As such, PTC looks like an excellent value stock for growth investors to buy now.
Trimble's AI solutions are still in their early stages
The AI case for Trimble (TRMB +1.78%) also involves the value that infusing AI into its solutions adds to them. Trimble, too, is in the business of connecting the digital and physical worlds, but in this case, its solutions help construction, geospatial, and transportation customers with precise positioning, modeling, and data analysis.
NASDAQ: TRMB
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For example, structural elements on an infrastructure/construction project can be digitally tracked in real time to ensure their placement aligns with the 3D digital model of the project. Or, logistics fleets can be monitored in real time.
With Trimble's solutions acting as a repository of data from its customers (data acquired using its highly precise hardware), there's clearly an opportunity for superior AI analytics to enhance its offerings. As CEO Rob Painter noted on the most recent earnings call, "We've been working with AI for years, and we are already connecting physical and digital solutions, workflows, and ecosystems."
In answering a specific question about AI, he argued that "we're very early in the game at the customer level." Still, with "hundreds of thousands of instruments and machines in the physical world" running on Trimble's platform, its customers will inevitably improve their daily workflows by using AI, now and in the future.
Trimble's growth is highly likely to get a boost from AI in the future. With the company growing its recurring revenue at a mid-teens percentage rate and on course to double its FCF from $500 million in 2024 to $1 billion in 2027, its current valuation of 22 times its estimated 2026 FCF makes it an excellent value for investors looking for AI exposure.
Image source: Getty Images.
ON Semiconductor: Growth is returning
Intelligent power and sensing chip specialist ON Semiconductor (ON 1.93%) has suffered in recent times due to a slowdown in growth spending in some of its core end markets, such as electric vehicles (EVs) and industrial automation. These markets do have attractive long-term secular growth prospects. However, EV sales haven't been growing to the degree that many automakers expected, and the U.S. manufacturing sector has been in contraction for over a year.
NASDAQ: ON
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Still, these are cyclical conditions that are likely to improve in the future. The fact is, the EV segment is still the growth area of the auto market, and industrial automation is one way to reduce the challenges of building a manufacturing base in a high-labor-cost country.
Moreover, growth in AI applications will boost ON Semiconductor's end markets. For example, its sensors are crucial parts of many advanced driver assistance systems (ADAS) and industrial automation systems (see PTC above), and its intelligent power solutions are used in many EVs. Moreover, ON Semiconductor has a fast-growing power solutions business for data centers, and it's a named partner for next-generation AI data centers with Nvidia.
Trading at just 11.3 times its expected 2026 FCF, and with its sales already inflecting, ON Semiconductor looks like a top stock to buy for 2026.
