Two Undervalued AI Stocks Worth Accumulating vs One Overpriced Play to Skip

The artificial intelligence revolution is reshaping corporate valuations at a pace not seen since the internet boom. While the market has enthusiastically embraced AI narratives, a significant gap has emerged between fundamentals and prices. As we assess the landscape heading into the latter half of 2026, identifying which cheap AI stocks offer genuine opportunity versus which ones command unsustainable premiums becomes crucial for prudent investors.

PwC analysts estimate that AI could add $15.7 trillion to global economic output by 2030—a projection that underscores why technology investors remain captivated by this sector. However, such enormous potential doesn’t automatically translate into profitable investments. The challenge lies in distinguishing between companies with solid business models trading at reasonable valuations and those riding speculative momentum.

Alphabet: Dual Engines of Growth at Bargain Valuations

Despite being a component of the Magnificent Seven that drove major indexes higher, Alphabet remains surprisingly affordable by historical standards. The Google parent company has faced persistent concerns about search market erosion from large language models, yet concrete evidence of this threat remains elusive.

According to market data from the middle of 2025, Google commanded approximately 89.6% of global internet search—a level consistent with its decade-long dominance of 89-93% market share. This foundational advertising platform isn’t evaporating anytime soon.

Beyond search, Alphabet’s advertising business (roughly 74% of net sales) benefits from strong cyclical tailwinds. With economic expansions typically outlasting recessions, the company possesses exceptional pricing power during growth periods. More importantly, Google Cloud represents the company’s most compelling long-term growth trajectory. The cloud division already operates at more than $49 billion in annual run-rate revenue and ranks as the world’s third-largest cloud infrastructure provider by spending. As enterprise customers gain access to generative AI capabilities, cloud growth should accelerate meaningfully.

The valuation picture paints an even more compelling story. Based on 2025 mid-year estimates, Alphabet shares traded at approximately 12.7 times forward cash flow and a 17.5 forward price-to-earnings multiple. These multiples represent roughly 28% discounts to the company’s five-year average cash flow multiple and trade 20% below its average forward P/E since 2020. For investors seeking cheap AI stocks with legitimate competitive advantages, Alphabet offers both growth and value.

Okta: Cybersecurity Demand Meets AI-Powered Intelligence

The second compelling opportunity resides in cybersecurity specialist Okta. Following guidance for 9-10% full-year revenue growth in fiscal 2026, the company’s shares sold off in late May 2025—creating an attractive entry point for contrarian-minded investors.

Cybersecurity has evolved from discretionary to essential infrastructure for every organization. Regardless of economic conditions, the hacking threat never takes a holiday. This structural demand ensures perpetual growth for providers like Okta.

What distinguishes Okta is its AI and machine learning-driven identity verification platform. While AI systems remain imperfect, they continuously improve at threat detection and response—capabilities far superior to traditional on-premises solutions. The company’s Identity Cloud platform becomes smarter and more agile as it processes more security data.

Okta’s subscription-based model creates additional appeal. Subscription businesses typically generate 80%-plus gross margins while fostering customer loyalty. The recurring revenue model also provides operating cash flow visibility that institutional investors value highly.

The valuation reset following the May decline created opportunity. Okta’s forward P/E contracted to 27, while its forward cash flow multiple of 21 sits substantially below its five-year average of 51. For those hunting for undervalued AI stocks with durable business models, Okta deserves serious consideration.

Palantir: When Premium Reaches Unsustainable Territory

Not every artificial intelligence company merits investment enthusiasm. Despite accumulating over $300 billion in market capitalization gains during the past 30 months, data-analytics specialist Palantir Technologies represents an investment minefield worth skirting.

The business itself possesses genuine strengths. The government-focused Gotham platform and enterprise-driven Foundry platform lack meaningful large-scale competitors, creating defensible competitive advantages. Both platforms incorporate AI and machine learning while generating highly predictable cash flows. Government contracts typically span multiple years, while Foundry operates on subscription terms.

The fatal flaw lies in valuation excess. During the internet revolution, leading innovative companies topped out at price-to-sales multiples between 30 and 43. Palantir’s P/S ratio recently surpassed 110—territory no megacap company has sustained indefinitely. History suggests Palantir won’t prove exceptional in this regard.

Moreover, every transformational technology since (and including) the internet has experienced bubble episodes. Investors systematically overestimate early adoption rates and utility from game-changing innovations. Consider the present evidence: despite robust AI infrastructure spending, most organizations haven’t yet optimized AI investments or generated meaningful profits from these expenditures. This pattern strongly signals a developing bubble environment.

If the AI speculation cycle deflates, sentiment will weigh tremendously on expensive names like Palantir. Additionally, Gotham’s addressable market carries limitations. Since this platform only serves the U.S. and immediate allies, the customer pool remains constrained relative to comparable enterprise software companies. These factors compound the valuation risk substantially.

The Framework for Selecting Cheap AI Stocks

Investors seeking quality AI exposure need a disciplined framework for distinguishing opportunity from hype. Genuine cheap AI stocks demonstrate several characteristics: established business models generating predictable cash flows, competitive advantages resistant to disruption, valuations trading at historical discounts to growth rates, and manageable expectations embedded in current prices.

Alphabet and Okta satisfy these criteria by offering affordable valuations, sustainable competitive positions, and growth catalysts from AI adoption. Palantir fails this test—its valuation has detached from fundamentals and sits vulnerable to mean reversion.

The AI opportunity remains real and substantial. Selecting cheap AI stocks with sound businesses beats chasing richly valued narratives every time.