The shares of these companies are trading at a discount to Amazon.
of stocks Amazon (AMZN 1.22%) The company's shares hit an all-time high this week after rising 53% over the past 12 months, and the company has been garnering attention on Wall Street due to impressive financial growth over multiple quarters and an expanding role in artificial intelligence (AI).
Amazon Web Services' (AWS) dominance in the cloud industry gives the company a promising position in the AI space as more and more businesses turn to the platform for their AI needs. Meanwhile, the company has announced its foray into chip design. Amazon has an exciting outlook in the AI space and would be an asset to any portfolio in the long run. However, stock price growth over the past year has not quite matched earnings growth, making the stock a bit overpriced at the moment.
Data by YCharts
This table shows that among the big names in the AI software industry, Amazon has the highest price-to-earnings (P/E) and price-to-free cash flow ratios: The figures suggest that Amazon is currently one of the most undervalued stocks among its peers.
But two companies in this space stand out as bargains, and may be worth considering instead of Amazon. alphabet (Google 2.57%) (Google 2.44%) and apple (AAPL 2.16%)These tech giants are investing heavily in AI and stand to gain big as the industry develops.
So forget Amazon and consider buying these two artificial intelligence stocks right now.
1. Alphabet
At its current price, Alphabet has no room for hesitation: the company has delivered strong revenue and stock price growth over the past year, yet trades at a discount relative to its peers. Meanwhile, Alphabet has the brand, technology, and cash reserves to make big strides in AI.
Its Google Cloud Platform has 11% of the cloud computing market share, compared to AWS's 31%, making it the third-largest cloud company after Amazon and Google Cloud. MicrosoftHowever, its growth rate exceeds that of both.
Google Cloud revenue grew 28% year over year in Q1 2024. In comparison, AWS sales grew 17% and Microsoft Azure revenue grew 21% during the same period.
Alphabet has invested billions in AI and is well positioned to build a profitable AI ecosystem around its products. With powerful brands like Android, YouTube, and many of the services under Google's umbrella, Alphabet has countless opportunities to grow its business with AI. The company could serve up more efficient digital ads, add generation capabilities to smartphone operating systems, better track YouTube viewing habits, and create a Google search experience closer to OpenAI's ChatGPT.
Data by YCharts
Plus, this chart shows that Alphabet is a stock you can trust through and through. Over the past five years, Alphabet has outperformed Amazon in stock price growth and free cash flow growth, while operating profits have grown as well. In addition to a much better stock price, Alphabet is a great time to buy right now and a better AI stock than Amazon.
2. Apple
Apple shares are up 14% since January 1, a figure that's significantly lower than the 30%-plus gains in Amazon and Alphabet shares over the same period. Apple missed out on the early AI boom and opted to take a more relaxed approach to the market, but recent trends suggest it could be on its way to a strong comeback in the coming years.
Bloomberg reported on July 2 that Apple is preparing to join ChatGPT developer OpenAI's board of directors as an observer. The move follows Apple's announcement at its Worldwide Developers Conference in June, in which it said the AI of its smart assistant Siri would be significantly improved to become more intuitive and answer hundreds of new questions. As part of the update, Siri will pass certain questions to ChatGPT, allowing users to use the OpenAI platform across their iPhone, iPad, and Mac.
According to Bloomberg, “Apple's board observer role puts it on an equal footing with Microsoft, which is OpenAI's biggest backer and a major AI technology provider.” Apple has long been in fierce competition with Microsoft; the two companies are consumer technology leaders and responsible for two of the most used computer operating systems. As a result, Apple's seat at the OpenAI table could put the company's AI technology on more par with its rivals and improve its position in the industry overall.
Data by YCharts
This table shows that Apple may be in a better financial position to expand in AI than Amazon or Microsoft. It's a cash cow with much higher free cash flow and operating profits over the past five years, so despite its slow start to AI, I wouldn't argue against it having a long-term advantage in the space.
Combined with its soaring stock price, Apple is worth considering over Amazon stock this July.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dani Cook has no investment in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet, Amazon, Apple, and Microsoft. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
