Machine learning is a branch of artificial intelligence that enables computer systems to learn from data and perform tasks normally requiring human intelligence. While many would think this is a new concept, machine learning has existed since 1952. Since then, this sector has been transforming various industries like healthcare, finance, education, and entertainment. These machine learning stocks, or AI stocks, have been among the best performers in the market thus far in 2023.
However, after a strong rally, some of the leading machine learning stocks have faced a recent pullback due to valuation concerns. I believe this pullback is likely to persist, as I noted in an article in late-July (essentially the peak), in which I said that “this AI rally is unsustainable and will soon fall on its face.”
Does this mean that the machine-learning boom is over? Not at all. This could be a great opportunity to invest in some of the most undervalued or overlooked machine-learning stocks that still have plenty of room for growth.
Here are three such machine learning stocks to buy right now.
UiPath (NYSE:PATH) is a robotic process automation (RPA) leader which uses software robots to automate repetitive and mundane tasks across various applications and systems. Essentially, RPA is a subset of machine learning, which focuses on improving the efficiency of business processes, as well as their accuracy and scalability. UiPath’s platform allows users to design, deploy, and manage RPA bots with ease and flexibility.
The stock has remained relatively subdued compared to other machine learning stocks this year. However, this sideways trend around the $15 range makes it a strong buy in my eyes.
Some may point out PATH stock is quite expensive, since it trades at a forward price-to-earnings ratio of 46-times. But given the company’s proven growth, I think the stock is actually below fairly valued. Analysts expect revenue growth to come in around 20% for the foreseeable future, but UiPath is a company that can easily outperform expectations. Since going public, UiPath has delivered a surprise on its top and bottom line in every earnings release. Thus, both the company and the stock remain under-appreciated by analysts, at least historically speaking.
Moreover, according to Gartner, UiPath has a vast addressable market of $93 billion annually. It also has a clear competitive advantage in its core RPA market, which is expected to hit a $66 billion valuation at a compound annual growth rate (CAGR) of 38% through 2032. UiPath currently has a 36% market share in the lucrative RPA market.
Alteryx (NYSE:AYX) is another under-the-radar machine learning company providing an end-to-end data analytics platform that allows users to prep, blend, analyze, and easily share data. The platform also enables users to apply machine learning and artificial intelligence models to their data sets without requiring any coding skills. Alteryx’s platform helps businesses solve complex problems, gain insights, and drive better decisions.
But before I go further, this is a high-risk, high-reward play, which is evident due to its plunging stock recently. Notably, this downward move came despite Alteryx beating expectations. The stock sank by nearly 30% immediately after it said it expected Q3 revenue to come in between $208 million and $212 million, against a consensus of $233 million. Unsurprisingly, the downgrades soon rolled in. Piper Sandler slashed its price target by a massive 55%, from $68 to $30.
But let me remind you, the company beat earnings per share expectations by 44.5% and revenue expectations by 3.3%. What’s even more interesting is that over the past four years, the company has only had one revenue miss by below $1 million and one earnings per share miss (by 1 cent). I think the company is sandbagging its results, to provide investors with even more beats down the road. Thus, for those looking to take a contrarian position against Wall Street, this is a machine learning stock to buy now.
Cognex (NASDAQ:CGNX) is a machine vision leader, a branch of machine learning that enables computer systems to see and understand images and videos. Cognex’s products include vision systems, software, sensors, and industrial barcode readers for various applications such as detecting defects, monitoring production lines, guiding assembly robots, and tracking items.
The stock has also tumbled recently, from around $56 in mind-July to roughly $48 at the time of writing. This is mainly due to its exposure to the cyclical semiconductor industry.
Notably, this performance is also despite the company posting a beat on both its top- and bottom-lines. Thus, this creates an opportunity to buy Cognex at a discount, as the company has plenty of potential in the robotics market, which is expected to grow at a compounded annual growth rate of 25.4% from 2020 to 2027.
Cognex’s machine vision products are essential for enabling robots to perform complex tasks such as picking, placing, sorting, and inspecting objects. It has a market share of over 20%, and this market is expected to grow to ~$41 billion by 2030.
On the date of publication, Omor Ibne Ehsan 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.