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Yahoo
2 days ago
- Business
- Yahoo
These Artificial Intelligence (AI) Stocks Could Appeal to Warren Buffett-Style Investors
Many AI stocks have inflated valuations, making it tough for followers of Warren Buffett's investing style to find good buys. For investors seeking value in the AI sector, three companies that stand out are Micron, Dell, and Google's parent Alphabet. 10 stocks we like better than Alphabet › Stock market guru Warren Buffett is renowned as a value investor who believes that it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Yet applying Buffett's approach to the artificial intelligence (AI) market can prove challenging. Finding reasonably priced AI stocks isn't easy in this hot sector, but good values do exist. Three of them are Micron Technology (NASDAQ: MU), Dell Technologies (NYSE: DELL), and Google parent Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG). These businesses offer exposure to different areas of the AI sector, and Buffett-minded investors might find this trio particularly appealing. Here's a deeper look into these companies. Founded in 1978, Micron specializes in computer memory and storage solutions. This year, it invented a 1-gamma memory chip, the world's first, according to the company. This memory chip is the smallest available today, and it enables more components, making it faster and more powerful. These desirable traits for AI hardware make the chip's small size ideally suited to support AI on mobile devices. That kind of technological breakthrough makes Micron's products popular for AI. For example, its high-bandwidth memory chips crossed $1 billion in sales for the first time in the company's fiscal second quarter, ended Feb. 27. As a result, the quarter's sales reached $8.1 billion, up nearly 40% from the prior year's $5.8 billion. This strong sales growth led to fiscal second-quarter net income doubling year over year to $1.6 billion. Consequently, diluted earnings per share (EPS) soared to $1.41, up from $0.71 in the prior year. Micron expects continued sales growth, forecasting third-quarter revenue to come in around $8.8 billion, a substantial increase from the previous year's $6.8 billion. The company's AI sales are on a roll, and with its new 1-gamma memory chip, it is poised for ongoing success in the AI era. Dell sells servers, PCs, and other hardware to build AI systems. Its customers include the hot AI company CoreWeave. It operates in a competitive space, but customers are hungry for hardware to power AI, and the company is capturing its share of this growing market. Sales increased 5% year over year to $23.4 billion in its fiscal first quarter, ended May 2. Chief operating officer Jeff Clarke said, "We experienced exceptionally strong demand for AI-optimized servers." Clarke's comments are encouraging given the current macroeconomic volatility, which casts a cloud of uncertainty over customers' information technology expenditures. Recent reports indicating the federal government is cutting tech spending caused Dell's share price to drop. But over the long run, AI demand positions Dell for sales growth. In fact, Q1 customer orders for AI hardware exceeded $12.1 billion. Mr. Clarke stated this result surpassed "the entirety of shipments in all of [fiscal 2025]." And in its 2026 fiscal year, Dell anticipates revenue hitting at least $101 billion, up from the prior year's $95.6 billion. Alphabet built proprietary AI and infused it into many of its products, including its Google search engine and its Google Cloud. The approach is paying off. Adding AI to its search process led to growth in usage, helping Google's first-quarter revenue reach $50.7 billion, up from $46.2 billion in the same quarter in 2024. Google Cloud's first-quarter sales also saw AI-fueled growth, climbing to $12.3 billion from the prior year's $9.6 billion. Alphabet's AI success propelled first-quarter revenue to $90.2 billion, compared to 2024's $80.5 billion, and net income to $34.5 billion versus last year's $23.7 billion. This catapulted diluted earnings per share to $2.81 from $1.89 in 2024. The company's stock was beaten down after losing two key antitrust cases brought by the U.S. government. However, management can appeal the decisions, meaning the legal battle is far from over and could extend for years before reaching a resolution, according to CEO Sundar Pichai. In the meantime, AI is helping Alphabet's business grow, and the company is determined to further advance its achievements in this area. It is aggressively investing in its tech infrastructure with plans for $75 billion in capital expenditures this year, up from 2024's $52.5 billion. Micron, Dell, and Alphabet have grown their businesses over decades, pay dividends, and have thriving AI solutions. These attributes suggest they're Buffett's brand of "wonderful companies" in the AI space. But do their stocks trade for what he would categorize as a "fair price?" Here's a look at all three of their forward price-to-earnings ratios (P/E) contrasted against AI giants Nvidia and Microsoft. Micron, Dell, and Alphabet all have forward P/E multiples significantly lower than Nvidia and Microsoft, suggesting this trio of AI stocks are a great value compared to their AI brethren. Their performance to date shows Micron, Dell, and Alphabet are solid AI companies, and their compelling valuations make them ideal stocks for Buffett-style investors to buy and hold over the long term. Before you buy stock in Alphabet, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Alphabet wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $649,102!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $882,344!* Now, it's worth noting Stock Advisor's total average return is 996% — a market-crushing outperformance compared to 174% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 9, 2025 Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Robert Izquierdo has positions in Alphabet, Dell Technologies, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. These Artificial Intelligence (AI) Stocks Could Appeal to Warren Buffett-Style Investors was originally published by The Motley Fool
Yahoo
06-06-2025
- Business
- Yahoo
Undervalued and Profitable: 2 Artificial Intelligence (AI) Stocks for Buffett-Minded Investors
Nvidia is a surprisingly great value stock. Berkshire Hathaway owns a more than $2 billion stake in another AI leader that you might not immediately think of as an AI business. 10 stocks we like better than Nvidia › Artificial intelligence (AI) could be the biggest growth opportunity for investors this century. According to a projection by United Nations Trade and Development, the AI market could grow from $189 billion in 2023 to $4.8 trillion by 2033. Fortunes will be made during this growth sprint, and finding the best AI stocks to invest in now could give your portfolio a huge leg up. But what about those who follow the philosophy of legendary value investors like Warren Buffett? Right now, there are two AI stocks that even Buffett-minded investors will love. In fact, Berkshire Hathaway already has a position worth more than $2 billion in one of the well-known businesses discussed below. Nearly every investor who follows the AI space will be well aware of Nvidia (NASDAQ: NVDA). Right now, with a market cap of more than $3 trillion, it's one of the three largest companies in the world. It designs and sells a variety of types of computer chips and software, but it's best known for its high-end graphics processing units, or GPUs. These specialized parallel processors can provide precisely the sort of computing power necessary to train and power machine learning and artificial intelligence models. Because it was already dominating the GPU space when the AI trend took off, Nvidia now has a roughly 90% market share in GPUs destined for AI applications -- a lead that has put it at the center of the AI revolution. As you might expect, Nvidia's sales have grown tremendously in recent years thanks to escalating demand for AI software, which has thus escalated demand for the GPUs that allow the technology to function at scale. Over the past three years alone, Nvidia's revenue has jumped by a total of 450%. And if analysts' forecasts are any indication, its sales could continue to grow at double-digit percentage rates annually for the next decade and beyond. Accordingly, Nvidia's price-to-sales multiple is a lofty 22.9. But because the company boasts one of the highest gross margins in the industry, the shares also trade at just 44 times earnings. That is a premium valuation, but given the rapid growth expected, shares trade at just 32 times forward earnings. Again, that's still fairly expensive -- but it's not as expensive as you might think a dominant AI leader with a bright future would be. An oft-repeated Buffett quote is that "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price," and he frequently advises that people should invest in quality businesses for the long term. Based on Nvidia's competitive advantages and high profitability, it's still trading at a fair price. The upfront premium should quickly come to look like a steal for investors who are willing to hang on to the stock for many years. Want to invest in an AI stock that's already in the portfolio of Buffett-run Berkshire Hathaway? There is one, but many investors may not recognize it as an artificial intelligence giant: Amazon (NASDAQ: AMZN). Most people think of Amazon as an e-commerce business. That segment still produces most of its revenue. But in terms of operating profit, the biggest contributor is actually Amazon Web Services, more commonly referred to simply as AWS. It's the largest cloud infrastructure provider in the world. With a market share of about 30%, it controls nearly as much as the next two competitors combined. AWS and its cloud computing peers are some of the biggest buyers of GPUs. Rather than building out expense infrastructure themselves, most AI companies rely on cloud computing services to help them scale up their infrastructure on demand. So if Nvidia is at the center of the AI revolution, so is AWS, and thus Amazon. Berkshire Hathaway opened its stake in Amazon back in 2019. Today, its position is worth just over $2 billion, and it made no changes in the position last quarter, even with shares at record prices. While its e-commerce business is typically in the spotlight, the company's AWS segment makes it a strong, though slightly diluted, AI pick for investors. Before you buy stock in Nvidia, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Nvidia wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $674,395!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $858,011!* Now, it's worth noting Stock Advisor's total average return is 997% — a market-crushing outperformance compared to 172% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 2, 2025 John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and Nvidia. The Motley Fool has a disclosure policy. Undervalued and Profitable: 2 Artificial Intelligence (AI) Stocks for Buffett-Minded Investors was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
