You know artificial intelligence (AI) is reaching the mania stage when the FUD (fear, uncertainty, and doubt) headlines appear. However, many of the headlines don’t tell you to avoid AI stocks. Rather, they want to make sure that you don’t limit your focus to stocks like Nvidia (NASDAQ:NVDA) and miss out on some under-the-radar AI stocks.
The skeptic in you may believe these experts have an agenda. They may, but investing isn’t about certainty. It’s about making educated guesses. That’s particularly true of AI.
Earnings season has a way of providing clarity. As companies report, investors get a better sense of companies that are turning AI into earnings. And, they can see stocks that are overhyped. But with so many names to choose from, it’s hard to keep on top of all the opportunities in this fast-moving sector.
These quiet performers, or under-the-radar AI stocks, have the potential for massive gains with a modest investment.
Palantir (PLTR)
Cathie Wood is fond of Palantir (NYSE:PLTR), whose forward P/E ratio is over 133x. However, objectively overvalued doesn’t mean a stock can’t be flying under the radar. That’s may be the case with Palantir.
PLTR stock dropped over 12% despite delivering an earnings report in which the company “crushed it” in the U.S. according to Chief Executive Officer (CEO) Alex Karp. Revenue was up both sequentially and year-over-year (YOY) as were earnings. And, although earnings were “only” in-line with analysts’ estimates, it was still the largest quarterly profit in the company’s history.
Plus, the company continues to grow both the commercial (40%) and the government (16%) arms of its business. After a year in which the company had over 50% growth in the commercial division, the 40% seems concerning. But it shouldn’t be. This is still strong growth.
Moreover, Palantir has true believers such as Wood who bought 1.35 million of PLTR stock after the dip. And, it has a committee army of retail investors. It also has its naysayers. Those traders took their profits after earnings, but with the stock trading around $21 after earnings, there’s plenty of upside for long-term investors.
Brookfield Infrastructure Partners (BIP)
You’ve heard of the term “picks and shovels stock.” Brookfield Infrastructure Partners (NYSE:BIP) presents investors with a different way to invest in the growth of AI. A better way to describe BIP is as a company that buys the picks and the shovels.
Specifically, the master limited partnership (MLP) owns and operates critical global infrastructure networks. And in 2023 and 2024, the company has been investing substantial amounts in data centers, the are the backbone of AI. Also, Brookfield has invested in semiconductor fabrication facilities as part of its commitment to the sector.
That should catch the attention of investors who may think of BIP stock more akin to a utility stock than an AI stock. Yet, investors still get a stock with a forward P/E of just 9.2x and a dividend with a current yield of 5.33%.
IBM (IBM)
Before you think about IBM (NYSE:IBM) as one of the under-the-radar AI stocks, the company has to be on your radar as a practical AI investment. Even IBM’s CEO Arvind Krishna acknowledges that the company’s AI story is still “in the early innings.” But Krishna also believes that the stock price doesn’t reflect the potential of AI. If that’s true, then now is the right time to consider IBM stock.
IBM was one of the first companies to experiment with machine learning and AI. You may remember Deep Blue that beat Garry Kasparov, the chess world champion, in 1997. Today, IBM has Watsonx, a cloud-based data analysis studio, that helps enterprise customers make use of powerful generative AI tools using the company’s own business data.
Admittedly, the company may only have a limited time in which to start adding customers and winning over investors. But at just 17x forward earnings and with a dividend that yields 3.91%, it might be worth taking a chance on the evolving and adaptable IBM.
On the date of publication, Chris Markoch had a LONG position in PLTR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.