Nvidia (NASDAQ: NVDA) is a great stock in artificial intelligence (AI). However, from a valuation perspective, it has become a bit expensive, causing some investors to look elsewhere for AI investments. I’m in that camp, but luckily there are a lot of AI companies worth buying right now.
Two that come to mind are Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) And Adobe (NASDAQ: ADBE). Both companies’ shares trade at reasonable valuations, and both are consistently great companies.
Generative AI has meant a huge technological shift for both companies
Alphabet is better known under its former name Google. It has been investing in its AI capabilities for years, and that is starting to pay off. The most notable area is the generative AI platform, Gemini. Gemini is already used for multiple purposes, including creating ads for customers, summarizing search results, and helping developers write code.
The tech giant is also seeing strong demand for its cloud computing wing: Google Cloud. While many companies want to use AI, few have the computing power to create a model tailor-made for their business. Furthermore, buying a supercomputer to create one would be overkill, so they rent computing power from a provider like Google Cloud. Many generative AI startups have done this because it is a more efficient use of capital. Its customer base includes some of the hottest startups, including 60% of funded generative AI startups and 90% of generative AI unicorns (private companies with valuations over $1 billion).
By creating an ecosystem full of AI tools, Alphabet has created a fantastic offering for anyone looking to develop and implement AI in a business.
Adobe is another avid provider of AI tools, even as it focuses on the digital media market. The generative AI tools have reduced the time required to create media assets and allow users to create images tailored to the viewer. Adobe is also innovating in the document space, where conversational AI can read documents and answer questions about their content.
While there were questions about whether Adobe might be out of touch in today’s AI day, strong results in the second quarter of 2024 ended May 31 have put those concerns to rest. Adobe exceeded expectations for both revenue and earnings per share and raised revenue expectations for the year.
Adobe is benefiting from the new wave of demand that AI brings, and it can also be purchased at a steep discount to its average historical valuation.
Both stocks are reasonably priced for their growth
Both stocks trade at much more reasonable prices than Nvidia. Since so much is changing at both companies, I’ll use the forward price-to-earnings ratio to gauge their valuations.
Although Adobe made a splash after its last earnings report, the stock is still valued lower than where it has been trading over the past year.
While some may find a valuation of 29 times forward earnings pricey, Adobe has consistently been one of the top performers in the market and has earned its premium.
Alphabet is now even cheaper.
While 23 times forward earnings is near the highest level of what Alphabet has traded at over the past year, it is still cheap from a broader market perspective. The S&P500 currently trades at 22.1 times forward earnings, meaning Alphabet has barely any premium to the broader market.
Considering Alphabet’s success and track record, it’s still a phenomenal buy at these prices.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury holds positions at Adobe and Alphabet. The Motley Fool holds positions in and recommends Adobe, Alphabet, and Nvidia. The Motley Fool has a disclosure policy.
2 Artificial Intelligence (AI) Stocks I’d Buy Right Now via Nvidia was originally published by The Motley Fool
