NVIDIA (NASDAQ: NVDA) is a great artificial intelligence (AI) stock. However, it has gotten a bit pricey from a valuation perspective, which has some investors looking elsewhere for their AI investments. I'm one of them. Fortunately, there are plenty of AI companies worth buying right now.
There are two that come to mind alphabet (Nasdaq: GOOG) (Nasdaq: GOOGL) and Adobe (Nasdaq: ADBE)Both companies' stocks are trading at fair valuations and both have consistently run great businesses.
Generative AI was a big technological shift for both companies.
Alphabet, better known by its former name Google, has been investing in AI capabilities for years and is starting to show results. The most notable area is Gemini, the company's generative AI platform. Gemini is already being used for a variety of purposes, including creating ads for clients, summarizing search results, and helping developers write code.
The tech giant is also seeing strong demand for its cloud computing division, Google Cloud. Many companies want to leverage AI, but few have the computing power to create models tailored to their business. Moreover, buying a supercomputer to create models is overkill, so they rent computing power from providers like Google Cloud. Many generative AI startups are embracing it because it allows them to use capital more efficiently. Its customer base includes some of the hottest startups, including 60% of funded generative AI startups and 90% of generative AI unicorns (private companies valued at over $1 billion).
By building an ecosystem full of AI tools, Alphabet has created a fantastic offering for anyone who wants to develop and implement AI in their business.
Adobe is also an avid purveyor of AI tools, but it's focused on the digital media market. Its generative AI tools reduce the time it takes to create media assets and allow users to create images tailored to their audience. Adobe is also innovating in the document space, with conversational AI that can read documents and answer questions about their contents.
There were doubts that Adobe was outdated in today's age of AI, but a strong performance in the second quarter of fiscal 2024, which ended May 31, allayed those concerns. Adobe beat expectations on both revenue and earnings per share and raised its full-year revenue guidance.
Adobe is capitalizing on a new wave of demand driven by AI, and it's also available to buy at a significant discount to its historical average valuation.
Both stocks are fairly priced for their growth
Both stocks are trading at much more reasonable prices than Nvidia, and since a lot is changing at both companies, I use forward price-to-earnings ratios to gauge valuation.
Adobe's shares surged after its latest earnings report, but the company's stock is still trading lower than it has been trading for the past year.
Some may consider a valuation of 29 times forward earnings too high, but Adobe has consistently delivered market-leading performance and has earned that premium.
Alphabet, on the other hand, is even cheaper.
At 23 times forward earnings, Alphabet's stock price is near the peak it has traded at in the past year, but it's still cheap relative to the broader market. S&P 500 Currently, Alphabet's stock is trading at 22.1 times forward earnings, meaning the company holds almost no premium to the broader market.
Considering Alphabet's success and track record, it's still a phenomenal buy at this price.
Should I invest $1,000 in Adobe right now?
Before you buy Adobe stock, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy right now…Adobe wasn't among them. The 10 stocks selected have the potential to generate huge profits over the next few years.
Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That comes to $801,365.!*
Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times S&P 500 Recovery Since 2002*.
View 10 stocks »
*Stock Advisor returns as of June 10, 2024
Suzanne Frey, an Alphabet executive, serves on The Motley Fool's board of directors. Keithen Drury has invested in Adobe and Alphabet. The Motley Fool has invested in and recommends Adobe, Alphabet and Nvidia. The Motley Fool has a disclosure policy.
“2 Artificial Intelligence (AI) Stocks to Buy Over NVIDIA Right Now” was originally published by The Motley Fool.
