Investors often view value stocks and growth stocks as mutually exclusive. This is likely because growth stocks often trade at premium valuations, and value stocks tend to attract conservative investors, or those focused on income more than growth. That essentially describes investors like Warren Buffett.
However, Buffett's Berkshire Hathaway includes stocks such as Amazon and T-Mobile that arguably tend more toward growth than value. Knowing that, one can identify artificial intelligence (AI)-oriented value stocks that might draw an investor like Buffett. These names are three examples.
Image source: Getty Images.
1. Alphabet
Amid Buffett's bent toward technology investors in recent years, Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) looks like a stock that could fit Berkshire's portfolio.
Alphabet is a longtime leader in the AI field, and that technology helped the company cement its leadership in search, a business that has consistently generated massive free cash flows through its leadership in digital advertising.
Nonetheless, it still derives 74% of its revenue from ads, and the rise of ChatGPT has raised questions about Alphabet's business model. With its market share in search now below 90%, it is under pressure to turn to other income sources.
Fortunately, it has done just that, deriving 14% of its revenue from Google Cloud. Also, its $45 billion autonomous driving company Waymo also holds the potential to pick up some of the slack.
To stay competitive, Alphabet pledged to spend $75 billion in capital expenditures (capex) this year. The company holds around $95 billion in liquidity, and it generated $75 billion in free cash flow over the trailing 12 months, a figure that does not include the capex spending.
That investment makes it likely the Google parent will stay competitive. When also considering the P/E ratio of about 19, value investors have tremendous incentive to bet on an AI-driven comeback.
2. Meta Platforms
Most investors likely know Facebook parent Meta Platforms (NASDAQ: META) better as a social media stock than an AI leader. One can understand that, given the 3.4 billion people that log on to a Meta-owned social media site every day. That amounts to 42% of the population, a figure that implies it is closing in on market saturation.
With the amount of data generated by its users, Meta sees its future in the metaverse and AI. To that end, it has begun to invest heavily in technology and data centers, pledging to spend between $64 billion and $72 billion in 2025 in capex to build its infrastructure.
Despite that staggering sum, it can likely afford to make this investment. Meta holds more than $70 billion in liquidity, and it generated $50 billion over the trailing 12 months.
Additionally, its P/E ratio is just around 27. When considering that reasonable valuation, its massive potential for AI leadership, and ability to generate cash, Meta is a growth stock priced to drive value-oriented investors.
3. Qualcomm
Another surprising value stock is Qualcomm (NASDAQ: QCOM). The AI chip designer has long led the development of smartphone chipsets, but heavy exposure to China and Apple's plan to develop chipsets in-house have soured many investors on Qualcomm stock.
However, investors have good reason to bet on an AI-driven recovery. Qualcomm has diversified into IoT, automotive, PC chips, and data center processors as it prepares for softer smartphone demand.
Admittedly, it is not investing as heavily as some tech giants in capex, spending just $1.1 billion over the previous 12 months. Nonetheless, with the DeepSeek breakthrough making low-cost AI more feasible, an AI-driven upgrade cycle could breathe new life into its smartphone business, increasing that segment's 12% annual revenue growth rate.
Moreover, its IoT and automotive segments grew revenue at a yearly rate of 27% and 59%, respectively, helping Qualcomm diversify its revenue base more rapidly.
Additionally, amid the impending loss of Apple and its China ties, Qualcomm trades at a 15 P/E ratio. That's far below any of the major chip design companies, and with its potential to support AI smartphones and other products, that valuation arguably makes this semiconductor stock too cheap to ignore.
Should you invest $1,000 in Alphabet right now?
Before you buy stock in Alphabet, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks 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 whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you’d have $669,517!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you’d have $868,615!*
Now, it’s worth notingStock Advisor’s total average return is792% — a market-crushing outperformance compared to171%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. 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. Will Healy has positions in Berkshire Hathaway and Qualcomm. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, and Qualcomm. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.
