2 Dirt Cheap AI Stocks to Buy in June

According to The Motley Fool, Alphabet and Adobe are undervalued AI stocks, trading below the S&P 500's forward P/E ratio of 22.1 while projected to exceed its typical 10% EPS growth over the next two years. Despite concerns about AI disruption to Google Search and Adobe's design software, both companies have integrated AI into their offerings and continue to show revenue growth, suggesting the market's valuation may be overly pessimistic; furthermore, both companies have massive stock buyback plans that could further boost EPS.

Analysis

Alphabet (GOOG, GOOGL) and Adobe (ADBE) are presented as significantly undervalued AI-related equities, trading at forward price-to-earnings (P/E) ratios below the S&P 500's 22.1 benchmark, a rarity for both companies. This valuation appears conservative given their projected earnings per share (EPS) growth is expected to surpass the S&P 500's typical 10% annual rate over the next two years: Alphabet forecasts 19% EPS growth for 2025 and 6% for 2026, while Adobe anticipates 11% and 12% for the respective years. The author suggests these projections might understate actual EPS growth, as both companies possess substantial stock buyback plans which could be accelerated given their current lower stock prices, thereby enhancing EPS by reducing shares outstanding. Despite market apprehension that AI could disrupt Alphabet's core Google Search business and Adobe's dominant design software suite, evidence suggests proactive and effective adaptation. Google Search revenue, for instance, rose 10% in the previous quarter despite the emergence of AI search alternatives, and Google has integrated AI search features. Similarly, Adobe has launched its popular Firefly AI, addressing concerns about generative AI image tools by offering enhanced control preferred by professional designers. The article concludes that current market concerns are primarily headline-driven, while the underlying businesses demonstrate robust performance and consistent execution, positioning them for potential market-beating returns.

Key Decisions for Investors

• Investors should assess the current valuation of Alphabet and Adobe, which appear low relative to their projected EPS growth and the S&P 500, potentially signaling a favorable entry point.
• Monitor the execution of AI integration strategies by both Alphabet (e.g., AI search overviews) and Adobe (e.g., Firefly AI) and their tangible impact on revenue retention and market share defense against AI-driven disruption.
• Consider the potential for enhanced EPS growth driven by active share buyback programs, particularly if current stock valuations encourage increased repurchase activity by management.
• Evaluate the argument that market concerns about AI disruption are overstated relative to the companies' demonstrated adaptability and continued revenue growth in core segments.