Undervalued AI Stocks: Opportunities for Investors in 2024

Undervalued AI Stocks: Opportunities for Investors in 2024

Morningstar analysts identify Cognizant Technology Solutions and Snowflake as attractive derivative plays on artificial intelligence.

As 2023 comes to a close, the surge in artificial intelligence (AI) stocks emerges as a standout story in the world of investing. Nvidia, the chipmaker giant, saw its stock skyrocket by over 200% this year, becoming the poster child for AI stocks. Alongside Nvidia, the “Magnificent Seven” stocks, including Apple, Alphabet, Microsoft, Amazon, Meta Platforms, and Tesla, contributed significantly to the market’s gains. However, Morningstar’s metrics indicate that most of these stocks are now either fairly valued or overvalued. Looking ahead to 2024, Morningstar predicts a year of remarkable transformation in the AI space, with companies vying for position and seeking opportunities for automation and growth. In this article, we explore two undervalued derivative plays on AI identified by Morningstar U.S. market strategist Dave Sekera.

Cognizant Technology Solutions: Empowering Companies with AI Expertise
Cognizant Technology Solutions, an IT consulting firm, offers technical capabilities in AI services to companies lacking the expertise or financial means to develop and maintain their own AI platforms. Morningstar assigns the stock a narrow economic moat rating, suggesting that the company has a competitive advantage that can withstand challenges from rivals for at least a decade. By providing AI solutions to a wide range of businesses, Cognizant Technology Solutions positions itself as a key player in the AI market, poised for growth in 2024.

Snowflake: Unlocking the Power of Data for AI Models
Snowflake, a data management provider, hosts enterprise data on which AI models are run. While Morningstar does not believe Snowflake has established an economic moat just yet, citing its limited public history and lack of profitability, the company benefits from switching costs and a network effect. As customers become increasingly reliant on Snowflake’s services, the stickiness of its customer base is expected to grow over time. Morningstar values Snowflake shares at $231, indicating potential upside for investors.

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As the AI revolution continues to reshape industries, investors are on the lookout for undervalued opportunities in this burgeoning field. While the “Magnificent Seven” stocks have seen significant gains, Morningstar analysts suggest that Cognizant Technology Solutions and Snowflake present compelling options for investors seeking derivative plays on AI. With Cognizant Technology Solutions offering AI expertise to companies and Snowflake providing the infrastructure for AI models, these companies are well-positioned to capitalize on the continued growth and adoption of artificial intelligence in 2024 and beyond. As the new year approaches, investors would do well to consider these undervalued AI stocks as potential additions to their portfolios.