Some AI stocks that trade at a reasonable price, according to Citigroup

Citigroup Identifies AI Stocks Offering Attractive Value Opportunities for Investors

Picking stocks during the AI boom is a bit like shopping for the best fruit at the market—you want to find the juiciest options that aren’t overpriced or about to spoil. This matters to investors because choosing the right AI-related companies can help your portfolio grow, while picking the wrong ones could leave you with a sour taste.

Why Investors Care About AI Stocks

The excitement around artificial intelligence (AI) has pushed some tech stocks way up in price. But not all companies in the AI race are winners. Some are growing fast and making money, while others might be overhyped or too expensive for what they offer. Investors need to be careful about where they put their money in this fast-changing area.

Bulls: Reasons to Be Excited About AI Stocks

  • Growth Potential: Some companies, like Nvidia and Meta, are leading the way in AI and showing strong earnings. According to Citi, Nvidia had $60.6 billion in cash at the end of October, giving it a strong safety net.
  • Diversification: There are now more ways to invest in AI than just the biggest tech names. Companies like Eaton and Adobe are also finding ways to benefit from AI trends.
  • Reasonable Prices: Not every AI stock is expensive. Some, like Eaton, are trading at prices that leave room for growth. Analysts from LSEG think Eaton could go up 19% over the next year (source).

Bears: Risks and Red Flags in the AI Sector

  • Possible Bubble: Some experts worry that AI stocks are becoming overpriced, just like tech stocks did during the dot-com bubble in the late 1990s. When prices get too high for too long, they can come crashing down.
  • Stock Volatility: The tech-heavy Nasdaq has been more up-and-down than the broader S&P 500 lately, especially in November. Big swings can make it hard for investors to sleep at night.
  • Disappointing Earnings: If companies fail to meet high expectations, their stock prices can drop quickly. History shows that missed earnings often burst bubbles (Investopedia).
Related:  Trump’s China Tariff Threat Drives Market Drop: What Investors Should Consider Now

Looking Beyond the Obvious

Citigroup says not to just chase the most popular AI stocks. Instead, look for companies that are growing but still reasonably priced—a strategy known as “Growth at a Reasonable Price” (GARP). This means finding businesses that use their money wisely and aren’t just spending for the sake of growth.

Citi’s picks include a mix of tech giants (like Nvidia and Meta), software makers (like Adobe), and even companies outside traditional tech, like Eaton, which helps power data centers for AI.

What History Tells Us

The dot-com bubble of the late 1990s and early 2000s is a good reminder—many tech stocks soared, but only those with real profits and strong business models survived the burst. According to the National Bureau of Economic Research, about half of all dot-com companies failed after the bubble popped, but the strongest ones went on to dominate their industries.

Investor Takeaway

  • Don’t just chase hype. Look for companies with real earnings and a clear path to growth, not just big promises.
  • Diversify your AI bets. Consider a mix of tech and non-tech companies that benefit from AI, like Eaton or Adobe.
  • Watch for red flags. If a stock’s price seems too good to be true, check if its earnings back up the excitement.
  • Remember the past. Learn from the dot-com era: real profits matter more than hype over time.
  • Stay informed. Keep up with earnings reports and analyst updates, so you can adjust your investments if needed.

For the full original report, see CNBC

Similar Posts