Will Healy, The Motley Fool
5 min read
In This Article:
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One prominent search and artificial intelligence (AI) giant trades at a rock-bottom valuation.
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This social media company could leverage its data horde to become an AI leader.
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Amid customer and geopolitical concerns, one semiconductor stock has arguably become oversold.
Investors often view value stocks and growth stocks as mutually exclusive. This is likely because growth stocks often trade at premium valuations, and value stocks tend to attract conservative investors, or those focused on income more than growth. That essentially describes investors like Warren Buffett.
However, Buffett's Berkshire Hathaway includes stocks such as Amazon and T-Mobile that arguably tend more toward growth than value. Knowing that, one can identify artificial intelligence (AI)-oriented value stocks that might draw an investor like Buffett. These names are three examples.
Amid Buffett's bent toward technology investors in recent years, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) looks like a stock that could fit Berkshire's portfolio.
Alphabet is a longtime leader in the AI field, and that technology helped the company cement its leadership in search, a business that has consistently generated massive free cash flows through its leadership in digital advertising.
Nonetheless, it still derives 74% of its revenue from ads, and the rise of ChatGPT has raised questions about Alphabet's business model. With its market share in search now below 90%, it is under pressure to turn to other income sources.
Fortunately, it has done just that, deriving 14% of its revenue from Google Cloud. Also, its $45 billion autonomous driving company Waymo also holds the potential to pick up some of the slack.
To stay competitive, Alphabet pledged to spend $75 billion in capital expenditures (capex) this year. The company holds around $95 billion in liquidity, and it generated $75 billion in free cash flow over the trailing 12 months, a figure that does not include the capex spending.
That investment makes it likely the Google parent will stay competitive. When also considering the P/E ratio of about 19, value investors have tremendous incentive to bet on an AI-driven comeback.
Most investors likely know Facebook parent Meta Platforms (NASDAQ: META) better as a social media stock than an AI leader. One can understand that, given the 3.4 billion people that log on to a Meta-owned social media site every day. That amounts to 42% of the population, a figure that implies it is closing in on market saturation.
