Investing

Missed the Nvidia and Meta Run-up? 3 More AI Stocks to Buy Before It's Too Late

Rich Duprey

Published: August 26, 2024 9:15 am

The tech stock selloff that began last month took the wind out of the sails of many previous high fliers. Driven higher by the promise of artificial intelligence, chipmaker Nvidia (NASDAQ:NVDA) ran up nearly 900% in less than two years as it became the face of the technology. NVDA stock is 160% higher from where it started 2024.

Similarly, although not as dramatically, Meta Platforms (NASDAQ:META) soared 460% after it fully embraced AI technology. There was a moment of doubt and pain for the social media stock earlier this year as investors thought it might be making the same mistakes it did with the metaverse. META shares, though, are up 85% this year.

Because their valuations have ballooned, they are not the bargains they were once. But this is an industry still in its infancy. Bloomberg Intelligence estimates generative AI will become a $1.3 trillion industry by 2032, a 42% compounded annual growth rate.

Today’s industry leaders may not be the ones winning the race in just a few years. Indeed, you might not recognize the three companies below as AI stocks, but that’s to your advantage. Buying them now before the market catches on to their potential is what makes them so attractive.

24/7 Wall St. Insights:

• AI is proving to be transformative for companies but don’t think you missed out on the opportunity.
• Just because stocks like Nvidia and Meta have already raced higher due to AI, there is still a large runway of growth ahead.
• If you want to pick up some of the most high upside stocks in the market “on sale,”, check out our brand-new “The Next NVIDIA” report that lays out the next megatrends in AI and the companies we’re confident can dominate them.

Entergy (ETR)

Utility operator Entergy (NYSE:ETR) is the first AI stock to buy before it’s too late. Because it runs utilities in the southern states of Arkansas, Mississippi, Texas, and Louisiana, Entergy can capitalize on the data center build out under way. The southern region of the country typically has lower energy costs than elsewhere, making it attractive to data centers, which demand a lot of energy because of AI’s power consumption.

Amazon (NASDAQ:AMZN) is investing $10 billion in two new data center complexes for its AWS cloud business in Entergy’s Mississippi service area. The utility also wants to build two new gas-fired power plants in Texas for an additional 1,600 megawatts of generation by 2028 to support data center growth in the state. Entergy also received approval for its $1.9 billion investment in grid resiliency in Louisiana and the utility will supply power to a new $3 billion data center project in Arkansas.

While Entergy’s stock is up 17% year-to-date, shares trade for just 14 times earnings, twice its revenue and twice its revenue. The utility operates in areas with favorable rate regulation that should support its growth and future profitability needs.

Deere (DE)

Another atypical AI stock, farm and heavy equipment manufacturer Deere (NYSE:DE) is worth considering. The company believes the technology can help transform farming as populations grow, food becomes dear, and weather remains changeable. 

For example, using computer vision and machine learning, Deere developed its See & Spray technology that helps minimize the use of herbicides on crops. Rather than indiscriminate spraying of fields, AI allows its equipment to roll over a field, see where a weed is growing, and then target application of an herbicide to kill it.

Deere is investing in helping farmers use AI to perfectly plant their fields and then plant, spray, and harvest their crops autonomously. The heavy equipment maker has long been interested in using technology to improve how farmers farm.

A decade ago, it bought Monsanto’s Precision Planting division and formed a joint venture for allowing farmers to use cloud-based systems to collect, organize, and analyze machine-to-machine information. As AI becomes more ubiquitous, Deere will further incorporate the technology.

DE stock is down 6% in 2024, and the shares trade at 13 times earnings, less than twice sales, and 20x free cash flow.

Cisco Systems (CSCO)

Once considered the backbone of the internet, Cisco Systems (NASDAQ:CSCO) remains a critical player in networking hardware. Its valuation from the dot-com days was excessive and it has spent many years trying to recover from that. Where the S&P 500 has nearly tripled in value over the past decade, Cisco stock has merely doubled. 

That is poised to change since CSCO is flat year-to-date but the stock goes for 13 times next year’s earnings and 19 times free cash flow. It is no longer solely focused on its network switches and routers but is repositioning itself to capitalize on the future of AI. 

Earlier this year it acquired Splunk, which was an early player in Big Data analytics. Using AI, Splunk monitors, searches, indexes and correlates data. It also embedded AI and machine learning capabilities into both its platform and security and observability applications.

Don’t expect Cisco to be an AI technology frontrunner. Much like its behind-the-scenes applicability to the internet, this network equipment stock will be strengthening business from the inside out. Its discounted valuation makes it one to own for its long-term potential.