Dividend Stocks

The AI Stock Underdogs: 7 Underappreciated Companies Poised for Greatness

Artificial intelligence has taken over business headlines for good reason. Yet, investors may be better served, at this juncture, focusing on underappreciated AI stocks. Why? Primarily, it comes down to the impact of a crowded trade.

Yes, you can pile your funds into the usual suspects such as Nvidia (NASDAQ:NVDA). However, the market never sees assets rise in perfectly linear fashion indefinitely because it’s difficult to sustain rising expectations. That’s especially the case for Nvidia. With so many blistering earnings performances, at some point, it will miss.

We don’t know when that miss will occur. So, it’s a financial game of Russian roulette.

On the other hand, hidden gems in the AI space could have longer legs, mainly because so few expect them to do anything. By opening the doors to non-tech enterprises, investors may be able to enjoy surprising profits. With that, below are underappreciated AI stocks to buy.

Walmart (WMT)

Source: Jonathan Weiss / Shutterstock.com

When you think of Walmart (NYSE:WMT), chances are, AI isn’t the first thing that comes to mind. However, it’s a clear beneficiary of digital intelligence. For example, the big-box retailer has started incorporating conversation AI into its business. With its voice shopping interface, customers can shop as fast as they can talk and text.

Financially, it’s a consistent performer, allowing investors the ability to sleep easy at night. In the four quarters since the period ending April 30, 2024, Walmart’s average positive earnings surprise came out to 7.88%. It’s not an astounding print but it gets the job done.

For the current fiscal year, covering experts are looking at earnings per share of $2.38 on revenue of $674.53 billion. Last year, the company posted EPS of $2.22 on sales of $648.12 billion. In the following year, these metrics could improve to earnings of $2.61 per share on sales of $700.54 billion.

While it’s not exciting, the reliability factor makes WMT one of the underappreciated AI stocks.

McDonald’s (MCD)

McDonald's golden arches

Source: Vytautas Kielaitis / Shutterstock

Fast-food giant McDonald’s (NYSE:MCD) isn’t exactly a technology player. However, it’s one of the underappreciated AI stocks thanks to the underlying deployment of the innovation. Last year, the Golden Arches made news when it opened a new automated restaurant in Texas. Rather than the traditional means of picking up orders, customers can take advantage of a conveyer-belt-fed system.

On a financial note, McDonald’s is very appealing because of its consistency. Yes, in the first quarter of 2024, the company incurred a small miss regarding its bottom-line target. However, in the past four quarters, the average positive earnings surprise came out to 5.93%.

For fiscal 2024, experts anticipate EPS of $12.20 on sales of $26.62 billion. That’s a sizable improvement over last year’s results of $11.15 EPS on revenue of $23.82 billion. Further, fiscal 2025 could see the bottom line rise to $13.28 per share with a top line of $28.14 billion. With a decent forward dividend yield of 2.45%, MCD ranks among the underappreciated AI stocks.

Kroger (KR)

Kroger (KR) Supermarket. The Kroger Co. is One of the World's Largest Grocery Retailers.

Source: Eric Glenn / Shutterstock.com

Grocery giant Kroger (NYSE:KR) makes sense in any context because of a cynical reality: people must eat. But KR is also one of the underappreciated AI stocks. Not too long ago, the company announced AI capabilities to its online marketplace. This new interface should give Kroger customers a superior experience via more informative product listings.

On a financial level, a key reason for investing in KR stock is the underlying consistency. In the past four quarters since the period ending Jan. 31, 2024, the grocer’s positive average earnings surprise clocked in at 7.98%. On a trailing-12-month basis, Kroger features a net income of $2.15 billion. Its profit margin comes in at 1.44%.

For the current fiscal year, analysts are seeking EPS of $4.42 on revenue of $148.73 billion. That’s a downgrade from last year’s results of $4.76 EPS on sales of $150.04 billion. However, there could be a gradual improvement to earnings of $4.55 per share on sales of $151.36 billion in the following year.

Deere (DE)

Several John Deere vehicles are parked outside of a building.

Source: Jim Lambert / Shutterstock.com

One of the most important companies due to its relevance to the agriculture industry, Deere (NYSE:DE) also ranks among underappreciated AI stocks. A key innovation that the company forwarded is its autonomous tractor. First, such autonomy may offer force multiplication for farmers. Second, because fewer people are interested in a farming career, these smart tractors could address sector labor shortages.

For investors, DE stock has attracted demand due to the pertinence to a critical ecosystem. Also, it’s a consistent performer. Since fiscal Q1, Deere’s average positive earnings surprise came out to just under 16%. That’s mighty impressive. Also, the company offers a forward dividend yield of 1.48%.

Moving forward, analysts anticipate a tricky narrative, with EPS coming down to $26.81 on sales of $48.08 billion by the end of this year. That compares disappointingly to 2023’s print of $34.69 EPS on revenue of $55.56 billion. Still, with the consistently robust performances recently, it wouldn’t be shocking to see Deere prove doubters wrong again.

Johnson & Johnson (JNJ)

A red Johnson & Johnson (JNJ) sign hangs inside in Moscow, Russia.

Source: Alexander Tolstykh / Shutterstock.com

A healthcare juggernaut, Johnson & Johnson (NYSE:JNJ) is one of the most trusted investments for the long haul. It also happens to be one of the underappreciated AI stocks. Notably, the company earned a spot in Fast Company’s 2022 “Most Innovative Companies” list. One featured innovation was J&J’s AI-powered C-SATS platform, which allows surgeons to connect any operating room to the cloud.

Aside from a small miss in Q2 2023, the healthcare giant has been consistent with its earnings performances. In the past four quarters, its average positive surprise came out to 1.6%. It’s not the most exciting enterprise, that much is certain. However, the focus on building the bottom line allows the company to offer a forward dividend yield of 3.21%.

For the current fiscal year, experts anticipate EPS to rise to $10.65 on sales of $88.35 billion. Last year, the company posted EPS of $9.92 on revenue of $85.16 billion. In fiscal 2025, these metrics could improve to earnings of $10.95 per share with a top line of $90.74 billion.

Palo Alto Networks (PANW)

Palo Alto Networks (PANW) logo on corporate building

Source: Sundry Photography / Shutterstock.com

A cybersecurity specialist, Palo Alto Networks (NASDAQ:PANW) happens to be a great example of underappreciated AI stocks. Primarily, the focus of digital intelligence centers on “accretive” endeavors; that is, directives that enhance productivity. At the same time, AI could be a force multiplier for nefarious online activities. Therefore, Palo Alto’s AI-focused cybersecurity protocol is a necessity in keeping enterprises safe from harm.

Not surprisingly, the company benefits from robustly consistent performances. In the past four quarters since the period ending Jan. 31, Palo Alto’s average positive earnings surprise clocked in at 15.53%. On a TTM basis, net income stands at $2.28 billion. Its profit margin is a stout 30.24%.

For fiscal 2024, analysts believe that EPS will rise to $5.51 on sales of $7.98 billion. That’s a big step from last year’s results of earnings of $4.44 per share on revenue of $6.89 billion. For fiscal 2025, EPS of $6.16 with a top line of $9.13 billion may be in the cards. Therefore, it’s one of the underappreciated AI stocks to consider.

Intuit (INTU)

Person holding cellphone with logo of US financial software company Intuit Inc. (INTU) on screen in front of business webpage. Focus on phone display. Unmodified photo.

Source: T. Schneider / Shutterstock.com

A software firm, Intuit (NASDAQ:INTU) is best known for its TurboTax program. That’s going to be significant moving forward as the gig economy may attract workers. If so, people will transition from being employees to independent contractors and that imposes a more complex tax structure. Invariably, those new to working for themselves will have questions. Here, generative AI can help.

As an investment, INTU stock is attractive for consistently (and handily) beating its quarterly bottom-line targets. In the past four quarters, Intuit’s average positive earnings surprise came out to 14.9%. On a TTM basis, its net income stand at $2.77 billion. Further, its profit margin clocks in at 18.35%.

For fiscal 2024, analysts anticipate EPS of $16.41 on sales of $16.05 billion. Last year, the company posted earnings of $14.40 per share on revenue of $14.37 billion. In fiscal 2025, these metrics could improve to $18.85 EPS with a top line of $18.05 billion. With a potentially expanding total addressable market, Intuit makes for one of the underappreciated AI stocks to buy.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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