11 Cheap AI Stocks to Buy in 2024
In this article, we discuss the 11 cheap AI stocks to buy in 2024. To skip the detailed analysis of the artificial intelligence industry, go directly to the 5 Cheap AI Stocks to Buy in 2024.
The artificial intelligence (AI) revolution has hit the ground running since last year, and there seems to be no end in sight to it in the near future. The PwC Emerging Technology Survey suggests that after the launch of ChatGPT, more than half of the surveyed companies have introduced generative AI in some form to their business. The AI stocks also performed quite well in 2023 and are still trending in 2024. The Magnificent 7 stocks outperformed the rest of the S&P 493 heavily in the year, and analysts like Goldman Sachs' David Kostin are positive that the gains will continue in 2024. The seven big tech stocks, including Meta Platforms, Inc. (NASDAQ:META), NVIDIA Corporation (NASDAQ:NVDA), which were the top performers of the group, collectively gained around 75% during the previous year compared to 12% gains for the rest of the 493 stocks in the S&P 500 index.
Other than the big tech, AI technology gave a boost to a range of AI companies. The Invesco Dynamic Software ETF (IGPT) gained over 30% in 2023 compared to the S&P 500's 25% growth. Moreover, the ETF is also 15.80% higher year-to-date (YTD) at the time of the February 23 market close, compared to the S&P 500’s 7.3% gains.
AI is changing the face of every sector in the market. For example, the mortgage finance company Rocket Companies, Inc. (NYSE:RKT) uses AI for mortgage banking, underwriting, and servicing. In 2023, The company piloted an AI virtual assistant with 325 mortgage bankers and outbound client calls.
In addition, the real estate company Equinix, Inc. (NASDAQ:EQIX) sets up networks and data centers, making it quite exposed to potential growth in AI computer facilities. At the company’s Q4 2023 earnings call CEO Charles Meyers said:
“We had a solid close to 2023 as digital transformation and accelerating AI demand drove a record quarter for xScale leasing, robust pricing dynamics and continued momentum across our data center and digital services portfolios. For the full year, we delivered more than $8 billion of revenues, eclipsing 21 years of consecutive quarterly growth, all while driving AFFO per share performance above the top end of our long-term expectations.
As we look ahead, we see our overall relevance to customers continue to rise with our global reach, highly differentiated ecosystems and full-range portfolio of services, positioning us as a key long-term partner to fuel digital transformation and unlock the enormous potential of AI.”
Effects of AI on Labor
An International Monetary Fund (IMF) report defines AI as a double-edged sword. While AI can potentially create many jobs, it can also replace human labor in several other areas. The IMF believes that nearly 40% of the jobs around the world are exposed to AI. In the developed countries, 60% of the jobs will be affected by the new technology creating a higher risk/reward situation for their labor markets. However, the report mentions that wealthier countries are also better equipped to adopt AI.
For emerging economies and under-developed nations, the IMF suggests laying concrete groundwork and infrastructure to be better prepared for the AI revolution in the job market.
The artificial intelligence industry is on the rise, and it’s significantly far away from its peak. This creates some entry points for investors in cheap AI companies. Keeping that in mind, some of the cheap AI stocks to buy in 2024 include Rekor Systems, Inc. (NASDAQ:REKR), Symbotic Inc. (NASDAQ:SYM), and AeroVironment, Inc. (NASDAQ:AVAV).
Our Methodology
For this article, we identified 30 stocks trading on NYSE and NASDAQ that directly benefit from the rise of AI or are actively working for the growth of the artificial intelligence space. Next, we chose the stocks with the highest average analyst price target upside as of February 23. The analyst price targets were taken from TipRanks. We only chose the companies that were covered by at least two analysts and didn’t have many Hold or Sell ratings, as compared to Buy-equivalent ratings. The 11 best cheap AI stocks are listed in ascending order of their average analyst price target upside.
We also added the number of hedge fund investors for each stock as of the fourth quarter of 2023. The hedge fund data was taken from Insider Monkey’s database that tracks 933 elite hedge funds. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
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11 Cheap AI Stocks to Buy in 2024 According to Analysts
11. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Average Analyst Price Target Upside: 11.40%
Average Analyst Price Target: $196.65
Number of Hedge Fund Holders: 120
Advanced Micro Devices, Inc. (NASDAQ:AMD) takes the 11th spot on our list of cheap AI stocks to buy. It produces semiconductor devices and its products, including AMD Vitis AI platform, MI300, and Ryzen 8040 laptop processors are driven by and designed for AI applications.
34 Wall Street analysts covered Advanced Micro Devices, Inc. (NASDAQ:AMD) over the last three months, and 29 maintained a Buy rating on the stock. As of the February 23 market close, the average price target of $196.65 represented an upside of 11.40%.
Advanced Micro Devices, Inc. (NASDAQ:AMD) is one of the cheap AI stocks to buy in 2024, along with Rekor Systems, Inc. (NASDAQ:REKR), Symbotic Inc. (NASDAQ:SYM), and AeroVironment, Inc. (NASDAQ:AVAV).
White Falcon Capital Management stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth quarter 2023 investor letter:
“It is important to note that the returns depicted above actually originated in the market turmoil of 2022 and were only realized in 2023. We assess that about 75% of the returns in 2023 were derived from just 35% of the portfolio. Notably, the technology companies we acquired in 2022 – Advanced Micro Devices, Inc. (NASDAQ:AMD), Amazon, Docebo, NU, Rover – performed exceptionally well. In hindsight, the decision to allocate to technology stocks appears straightforward; but it actually demanded courage and conviction to buy and add to these stocks during the fear and uncertainty of the 2022 bear market.
The top 5 positions in the portfolio were: Precious Metals royalty basket, Nu Holdings, AMD Amazon.com and Converge Technology Services. AMD has worked out great for us but we must admit that it has gotten expensive. AI was not part of our original investment thesis and AMD is a great reminder of how one can get ‘lucky’ investing in quality businesses run by competent management teams (ditto for Amazon).”
10. Apple Inc. (NASDAQ:AAPL)
Average Analyst Price Target Upside: 12.95%
Average Analyst Price Target: $206.15
Number of Hedge Fund Holders: 131
Apple Inc. (NASDAQ:AAPL) is famously known for its signature consumer electronics and more, but it has been working tirelessly to integrate AI and machine learning into its products.
On February 1, Apple Inc. (NASDAQ:AAPL) declared a quarterly dividend of $0.24, payable by February 15 to the shareholders of record on February 12. The stock’s dividend yield was 0.53% as of the February 23 market close.
In the first quarter of 2024, Apple Inc. (NASDAQ:AAPL) posted a GAAP EPS of $2.18, surpassing the analysts’ estimates by $0.07. The revenue jumped 2.1% year-over-year (YoY) to $119.6 billion, topping the estimates by $1.34 billion.
Mairs & Power mentioned Apple Inc. (NASDAQ:AAPL) in its fourth quarter 2023 investor letter. Here is what it said:
“The Fund’s relative performance was negatively impacted by what we didn’t own as well. In particular, not holding Apple Inc. (NASDAQ:AAPL) for most of the year cost the Fund more than 300bps (basis points) of performance. Apple may be the best-known company in the world and its seemingly ubiquitous iPhone holds a dominant share of the global cell phone market. Apple is even more dominant among Millennials and Gen Zers, which should lead to even greater market share as these cohorts age. This loyal user base should pay huge dividends for shareholders as Apple continues to monetize this ecosystem, especially as the company delves deeper into services, payments, and AI. We initiated a position in Apple during the fourth quarter and await a more attractive entry point to add to our position.”
9. Alphabet Inc. (NASDAQ:GOOGL)
Average Analyst Price Target Upside: 14.33%
Average Analyst Price Target: $164.59
Number of Hedge Fund Holders: 214
Alphabet Inc. (NASDAQ:GOOGL) is one of the biggest tech holding companies and has many AI-driven products under its belt, including Bard, Gemini 1.5, and more.
On February 15, Alphabet Inc. (NASDAQ:GOOGL) introduced its new next-generation AI model, named Gemini 1.5. The mid-size multimodal model is set to be released for testing soon and will be called the Gemini 1.5 Pro version.
According to Insider Monkey’s database which tracks 933 elite hedge funds, 214 funds had investments in Alphabet Inc. (NASDAQ:GOOGL)’s stock in the fourth quarter. With 45.22 million shares worth $6.3 billion, Ken Fisher’s Fisher Asset Management was the top investor in the company.
First Pacific Advisors stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its fourth quarter 2023 investor letter:
“Alphabet Inc. (NASDAQ:GOOG) continued going from strength to strength during 2023 despite concerns that competition may infringe on the company’s dominant position in Search. Thus far, Alphabet has continued to hold its own, and we look forward to seeing how the company incorporates further AI developments across the Alphabet ecosystem. Lastly, we are hopeful that the impending arrival of a new CFO will bring a renewed focus on efficiency – an area where we believe Alphabet has ample room for improvement.”
8. Microsoft Corporation (NASDAQ:MSFT)
Average Analyst Price Target Upside: 14.44%
Average Analyst Price Target: $469.58
Number of Hedge Fund Holders: 302
Microsoft Corporation (NASDAQ:MSFT) has been long making headlines in the AI industry with its investments in AI companies and AI products like Azure AI.
On February 20, Microsoft Corporation (NASDAQ:MSFT)’s Vice Chair and President Brad Smith took to Twitter and announced that the company would be investing $2.1 billion over the next two years to develop the AI infrastructure in Spain.
On February 15, it was reported that Microsoft Corporation (NASDAQ:MSFT) is planning on furthering the AI infrastructure in Germany through an investment of 3.2 billion euros ($3.44 billion) in the next two years.
Microsoft Corporation (NASDAQ:MSFT) was mentioned in Baron Funds’ fourth quarter 2023 investor letter. Here is what it said:
“Our biggest purchase in the fourth quarter was a new position we initiated in the software platform Microsoft Corporation. While we have owned shares of Microsoft Corporation (NASDAQ:MSFT) in the large-cap core growth Baron Durable Advantage Fund, we have been reluctant to add Microsoft to this Fund for many years namely since we viewed it as a better fit for a post high-growth strategy. However, Microsoft’s transformation under the helm of Satya Nadella has changed the company’s trajectory as it went from a windows-centric, on – premises technology provider to one of the top two global cloud providers. Cloud now represents over 55% of total revenues and has been growing rapidly. Over time, Microsoft was able to build a $125 billion run-rate cloud business that is still growing at a rapid pace and continues to take market share, while becoming a more important driver for the company. For example, in the last quarterly earnings release, Microsoft Cloud grew 23% year-over-year in constant currency, significantly outpacing the company’s 12% overall constant currency growth as well as the growth of its main competitors. A 23% growth rate at this scale essentially implies that Microsoft added a run rate of around $24 billion of cloud revenues year-over-year. Just to put this in perspective, $24 billion is nearly the size of Mastercard’s business, it is over 8 times Snowflake’s total revenue and is nearly 3 times ServiceNow’s total revenue. We continue to view cloud as early in its penetration opportunity – according to latest estimates from Gartner, global cloud spend is expected to be $564 billion3 which still represents only 12% of the total $4.7 trillion worldwide IT spending.
We also believe that Microsoft is one of the best competitively positioned large-cap companies with its vertically integrated software stack (infrastructure + applications), while the inflection in the adoption of artificial intelligence (AI) and GenAI represents potentially the biggest addressable market expansion for the company in recent history. We also view Microsoft’s competitive positioning in AI as advantaged thanks to both the fact that it does not face an innovators dilemma in its core business (as compared with Alphabet’s core search business, which could potentially be at risk due to GenAI). Microsoft also has a tight partnership with OpenAI, has a large proprietary data asset built over time, and has a go-to-market advantage through a vast and robust partner ecosystem and its significant installed base and product bundling opportunities. These should enable it to cross-sell its existing user base as AI becomes embedded into current and new products…” (Click here to read the full text)
7. Synaptics Incorporated (NASDAQ:SYNA)
Average Analyst Price Target Upside: 17.66%
Average Analyst Price Target: $122.30
Number of Hedge Fund Holders: 20
Synaptics Incorporated (NASDAQ:SYNA) is a California-based company that designs and sells user interface solutions, and many of them are integrated with AI, like its Smart Home SoC solution. It ranks seventh on our list of cheap AI stocks to buy in 2024.
On February 9, Rosenblatt analyst Kevin Cassidy raised the price target on Synaptics Incorporated (NASDAQ:SYNA)’s stock to $130 from $110 and kept a Buy rating on the shares.
On February 8, Synaptics Incorporated (NASDAQ:SYNA) released its Q2 earnings result with a non-GAAP EPS of $0.57, which beat the estimates by $0.13. The revenue of $237 million topped the estimates by $1.33 million.
TimesSquare Capital Management made the following comment about Synaptics Incorporated (NASDAQ:SYNA) in its Q2 2023 investor letter:
“In the Information Technology sector, Synaptics Incorporated (NASDAQ:SYNA) develops and markets semiconductor product solutions. Their products enable users to interact more easily with smartphones, notebooks, tablets, and other portable multi-media devices. While the fiscal third quarter results were in line with sell-side projections, forward guidance was worse than expected. Management sees growing macroeconomic headwinds further impacting IT budgets, and the inventory draw-down has been slower than they had anticipated on weaker sell-through trends. Synaptics lost -23% and we added to the position.”
6. Adobe Inc. (NASDAQ:ADBE)
Average Analyst Price Target Upside: 18.07%
Average Analyst Price Target: $653.43
Number of Hedge Fund Holders: 105
Adobe Inc. (NASDAQ:ADBE) is a California-based company that manufactures and sells computer software and its Adobe Sensei is just one feather among many in its hat when it comes to AI technology.
In the fourth quarter, 105 hedge funds owned a stake in Adobe Inc. (NASDAQ:ADBE)’s stock. Fisher Asset Management was the most significant stakeholder in the company, with 4.56 million shares worth $2.72 billion, representing 1.33% of the portfolio.
Out of 30 Wall Street analysts that covered Adobe Inc. (NASDAQ:ADBE) in the last three months, 24 kept a Buy rating on the stock. The average price target of $653.43 had an upside of 18.07% as of the February 23 market close.
Rekor Systems, Inc. (NASDAQ:REKR), Symbotic Inc. (NASDAQ:SYM), and AeroVironment, Inc. (NASDAQ:AVAV) are some of the cheap AI stocks to buy in 2024, besides Adobe Inc. (NASDAQ:ADBE).
Polen Capital commented on Adobe Inc. (NASDAQ:ADBE) in its third quarter 2023 investor letter. Here is what it said:
“Both Alphabet and Adobe’s businesses continue to perform well. With respect to Adobe, the most recent quarter delivered more of the same with constant currency revenue growing 13%, margin expansion, and over 2% of shares outstanding repurchased for non-GAAP earnings growth of over 20%. We believe its approach to GenAI through Firefly, which guarantees safe content because it trains on Adobe Stock, will continue to be attractive to enterprises. The counter to GenAI, and something we are keeping an eye on with Alphabet and Adobe, is that it requires heavy investment. While both businesses can leverage their scale and manage costs in other areas, we expect the investment in future growth through GenAI will weigh on company-wide margins over the near term.”
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Disclosure. None. 11 Cheap AI Stocks to Buy in 2024 is originally published on Insider Monkey.
