Artificial intelligence stocks are a hot topic on Wall Street. Just remember that a stock’s valuation always matters. You can’t unquestioningly pay any price for even the best companies and expect the returns you want.
With that in mind, some quality stocks are trading at attractive prices today. Among them are Meta Platforms (NASDAQ: META), Salesforce (NYSE: CRM), and SentinelOne (NYSE: S).
Here is the pitch for each stock and why investors can confidently buy them today.
1. Meta Platforms
Social media giant Meta Platforms uses artificial intelligence (AI) to make more money from the nearly 4 billion people using its apps each month. Brands can now leverage AI tools to increase the efficiency of ads reaching their target audience. Meta has grown to over a trillion-dollar valuation on Facebook, Instagram, and WhatsApp, but Threads is steadily emerging as the next potential social media winner.
CEO Mark Zuckerberg remarked during the company’s fourth-quarter earnings call that Threads, which competes with Elon Musk’s X (formerly Twitter), has grown to over 130 million monthly active users. There is still virtually no monetization occurring on Threads because Meta is focusing on increasing its user base. Still, this momentum is promising for a company that has proven it can turn social networks into cash cows.
Don’t get me wrong; Meta is a table-pounding buy, even without knowing how Threads will eventually impact the business. Shares have surged over the past 18 months but still trade at a forward P/E ratio of 24. Analysts believe the company will grow earnings by an average of 19% to 20% annually over the next three to five years, making the stock a potential bargain for its expected growth. No company does social media like Meta Platforms.
2. Salesforce
Enterprise software has become a vast industry that Salesforce sits squarely in the middle of. The company was built on its customer relationship management software but has expanded to virtually every aspect of what you need to run a company. After some bolt-on acquisitions, Salesforce also offers collaboration tools via Slack and data tools on Tableau.
Salesforce is using AI to enhance its existing business. This generative AI, which Salesforce calls Einstein, is implemented throughout Salesforce to make its various products more useful. It’s like having a digital assistant at your side. It’s an internal AI that helps users answer questions, understand and predict customer behaviors, and create content across all parts of Salesforce’s software suite.
Financially, Salesforce is trading at attractive levels today. The stock trades at 31 times 2024 earnings, but that’s supported by solid earnings growth that analysts see averaging nearly 18% over the coming years. That’s a fair PEG ratio of 1.8. Investors can nibble on this blue chip technology stock and get more aggressive if shares slip to a more attractive price.
3. SentinelOne
Other companies, such as SentinelOne, built their products on AI. SentinelOne is a cybersecurity company that uses AI to proactively hunt for viruses and other threats on devices and their networks. Cybersecurity is very competitive, so SentinelOne must stay on the cutting edge of technology. The company has received accolades from third parties like Gartner for its excellence in protection.
SentinelOne gets knocked for not being a profitable business. However, its quarterly cash burn has improved from $32 million to just $10 million over the past year, so free-cash-flow generation appears imminent. Additionally, SentinelOne has a sparkling balance sheet with zero debt and $925 million in cash. The company should be well into profitability by the time cash runs low.
That lack of profitability has put shares at a discount. Its most direct competitor, CrowdStrike Holdings, trades at over twice the price-to-sales ratio (P/S) SentinelOne does. That’s fair today, but long-term investors who believe SentinelOne can balance growth and turn a profit could enjoy scooping up shares on the cheap. The stock’s P/S ratio today is just 9, which was once over 100 when shares first went public.
Should you invest $1,000 in Meta Platforms right now?
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Justin Pope has positions in SentinelOne. The Motley Fool has positions in and recommends CrowdStrike, Meta Platforms, and Salesforce. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
3 Artificial Intelligence (AI) Stocks to Buy This Month: April 2024 was originally published by The Motley Fool