2 Artificial Intelligence (AI) Stocks That Look Undervalued in Today's Market
Artificial intelligence stocks have dropped alongside the broader market, creating new value opportunities amid ongoing tariff challenges. Qualcomm is expanding into areas like PCs and industrial automation, while Adobe is introducing AI-powered features across its leading creative software suite.
The AI Boom and Market Context
The AI surge is far from over. Experts agree that most shareholder value lies ahead, similar to the early days of the internet or personal computers. However, recent macroeconomic concerns have unsettled the stock market. From February to early May 2024, the S&P 500 fell 9%, and the tech-heavy Nasdaq Composite declined 12.7%. High-flying tech names have taken a hit, making some AI stocks appear attractively priced. Qualcomm and Adobe stand out as compelling options.
Why Qualcomm’s Tariff Dip Could Be a Buying Opportunity
Qualcomm reported strong quarterly results in late April, with 17% sales growth year-over-year and a 22% jump in earnings per share, beating analyst expectations. However, management warned that tariffs would impact revenues and profits in the coming quarters. Growth is expected to slow, and earnings could decline slightly. Despite this, Qualcomm’s stock fell nearly 9% the next day and now trades 38% below last summer’s highs.
Valuation metrics show Qualcomm at 14.6 times earnings and 13.4 times free cash flow, well below the S&P 500 averages of 27.0 and 26.0 respectively. This suggests the stock is undervalued.
While the tariff impact is real, Qualcomm is a long-term player with a history of steady value creation. Its dividend yields 2.5%, providing income while investors wait for growth to resume. Qualcomm is actively diversifying beyond smartphones into PC processors, IoT sensors, and industrial automation. The latter, in particular, offers growth potential by integrating AI into manufacturing processes.
These short-term headwinds affect many companies, but Qualcomm’s strategic moves and solid fundamentals make it a stock worth holding through the current slowdown.
Adobe’s Attractive Valuation and AI Focus
Adobe, known for industry-standard creative tools like Photoshop and Acrobat, reported earnings before recent tariff announcements. Its next report is due mid-June. Since February 2024, Adobe’s stock has dropped 39% from multi-year highs.
Adobe trades at 25.4 times earnings and 17.9 times free cash flow, still below market averages and reasonable for a software company. Its ongoing investment in AI is clear, with new features enhancing video creation and editing.
While Adobe may offer cautious guidance amid macroeconomic pressures, it remains highly profitable and positioned for long-term growth. Its AI enhancements will help maintain leadership in digital content creation, making it an appealing investment at current prices.
Final Thoughts
Both Qualcomm and Adobe present undervalued opportunities in the AI sector. Temporary challenges like tariffs and market volatility have weighed on their stock prices, but their business models and AI strategies support sustained growth over time.
For finance professionals interested in AI trends and investments, these stocks offer a balance of value and exposure to technology shaping the future. Exploring AI courses by leading companies can provide further insight into the evolving AI landscape and its impact on markets.