It’s been a remarkably strong quarter for artificial intelligence (AI) stocks as investors continue to flock to firms that have the best chances of monetizing the new technology. Going into the second quarter, the price of admission to numerous AI stocks has undoubtedly risen.
Still, given it’s impossible to tell how long the so-called AI boom will last (some bulls think the highest-growth days of such a boom could span years), I’m not so sure if a pullback is looming over the broader basket.
At some point, investors will get opportunities to snag entry points on dips. But until then, investors may wish to keep a close watch on some of the lower-cost names that stand out as being under the radar. In the second quarter, my guess is that more firms will warm up to AI to drive sales or margin gains. Either way, AI remains a high-growth wild card for the American economy.
Here are some AI plays I’d stash on my must-watch list this coming quarter. Some of them sport some pretty strong buy ratings from select analysts on Wall Street right now.
IBM (IBM)
Long-time market underperformer IBM (NYSE:IBM) got its moment to shine over the past year. The recent burst of momentum isn’t showing signs of slowing down either, with IBM stock topping the S&P 500 year to date. It was up with an impressive 17% gain to close out the first quarter of 2024.
As the company moves into the second quarter with notable AI tailwinds riding behind it, I’m inclined to view IBM stock as more of a must-watch (especially with its watsonx platform), now that it’s had a chance to melt up.
Even after the euphoric surge, the shares of IBM seem unpriced, in my opinion, now going for just 23.4 times trailing price-to-earnings (P/E). Also, the 3.48% dividend yield makes IBM seem like an AI play that’s too good to be true.
Not only is IBM reinventing itself for the modern age, but it could rise as one of the top dogs in AI for the enterprise. It’s been a long time, but Watson finally looks to be pulling his weight!
Oracle (ORCL)
Oracle (NYSE:ORCL) stock enjoyed its own AI-fueled boom at the midpoint of last year. Though shares have stalled since the stock peaked last June, the latest quarterly earnings seem to have renewed investor enthusiasm. With shares going for 33 times trailing P/E, I’d argue the fast-moving cloud titan could gain further and still be relatively cheap to most of its peers.
By embedding generative AI across the stack, Oracle also seems to be in the running to be one of the bigger enterprise AI winners. Undoubtedly, OCI Generative AI stands out as one of the most promising services out there, with the ability to leverage powerful AI models from firms such as Cohere.
As we move into the latter quarters of 2024, don’t expect Oracle to pull the brakes to allow enterprise AI enablers to catch up. Many analysts like the stock, and for good reason.
Dell (DELL)
Dell (NYSE:DELL) was another tech firm that flew under the radar before it clocked in a quarter, putting it right in the AI spotlight. Even after this year’s parabolic rise (shares up 51% year to date), the stock’s still not even close to being expensive at 26.2 times trailing P/E. Like Oracle, Dell seems to be an underrated AI underdog that’s just starting to gain the respect of everyday investors and analysts.
As we approach the year’s end, I expect Dell’s management team to do their best to allow the firm to live up to the high AI hopes now set in place. Dell’s latest AI-driven quarter didn’t just deliver a surprise — it delivered a shocker. And the stock is sure to be a wild mover as the market looks to assign a new multiple for its AI prowess.
If Dell delivers in future quarters, perhaps a much higher multiple is deserved.
On the date of publication, Joey Frenette did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
