Undervalued and Profitable: 2 Artificial Intelligence (AI) Stocks to Buy and Hold

Key Points

• One company is a technology giant whose advertising business got a nice shot in the arm thanks to AI.

• The need for cloud-based AI services among small businesses remains strong, which is boosting the other company.

• 10 stocks we like better than Meta Platforms ›

A great way for investors to make money is to buy stock in solid companies operating in a growing sector of the economy and hold that stock over the long term. This strategy helps them take advantage of secular growth opportunities and also benefit from the power of compounding.

Artificial intelligence (AI) is turning out to be a great growth driver for technology stocks. Companies that offer AI hardware and software solutions are seeing healthy growth in their business and their valuations. That means finding an attractively valued AI stock trading at a reasonable valuation is now a challenge, considering the rich valuations at which tech stocks are trading thanks to AI.

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However, there are still some solid AI companies investors can buy stock in at the moment without paying a rich multiple. Let's take a closer look at two of them.

Image source: Getty Images.

1. Meta Platforms

Social media giant Meta Platforms (NASDAQ: META) employs AI in its applications to drive an increase in user engagement, and it gives advertisers access to a variety of AI tools to drive more ad spending. The strategy is paying off nicely for Meta, improving monetization and leading to healthy growth in the company's bottom line in the past couple of years.

Data by YCharts.

With a daily active user base of almost 3.5 billion, Meta gives advertisers access to a gigantic audience. Its AI recommendation tools encourage this huge user base to spend more time on its platform. This, in turn, leads to an improvement in the performance of ads.

CEO Mark Zuckerberg remarked on Meta's earnings conference call last month that its improved ad performance was a result of "AI unlocking greater efficiency and gains across our ads system." The company reported a 5% AI-related jump in ad conversions on Instagram, along with a 3% AI-related improvement on Facebook.

Not surprisingly, Meta is working on improving its recommendation models to serve better content to users, and that could drive further improvements in its advertising business. The advantages of Meta's AI-powered tools are the reason why it was able to deliver 11% more ads in Q2, and also benefited from a 9% year-over-year increase in the average price per ad.

This momentum is likely to continue as Meta points out that for every dollar spent by advertisers using its new AI tools in the U.S., they get a return of $4.52. As a result, Meta can continue to corner a bigger share of the digital advertising market that's expected to grow at an annual rate of 15% through 2030. Its revenue grew by almost 19% in the first half of 2025, suggesting that it is growing at a faster pace than the market it serves.

It can sustain this trend over the long run if it keeps improving its AI offerings for both users and advertisers. That's why investors might want to consider buying this tech stock while it trades at 28 times earnings, a discount to the tech-laden Nasdaq-100 index's earnings multiple of 33.6.

2. DigitalOcean

Cloud computing services provider DigitalOcean (NYSE: DOCN) is another attractively valued company reaping the benefits of the growing adoption of AI. Its on-demand cloud computing platform mainly targets early-stage technology companies and developers.

DigitalOcean offers customers a full-stack AI-focused solution. By renting out graphics processing units (GPUs) from the likes of AMD and Nvidia for AI model training and inference to help customers build AI agents and custom applications, DigitalOcean makes its presence felt in a market that's set for robust long-term growth.

Specifically, the cloud AI market is expected to grow revenue more than 7x between 2025 and 2030, generating over $647 billion in annual revenue by the end of the decade. DigitalOcean's strategy of offering a scalable platform to small customers looking to jump onto the AI bandwagon is a smart move, as it could help it corner a nice chunk of the opportunity on offer.

The good news for investors is that its growth profile is already improving thanks to the adoption of its AI-focused offerings. DigitalOcean reported its second-quarter results on Aug. 5. It delivered healthy growth in its revenue and earnings, and also raised its full-year guidance.

DigitalOcean's updated 2025 earnings per share forecast range of $2.05 per share to $2.10 per share points toward a potential jump of 8% from last year's earnings. Notably, DigitalOcean earnings jumped 26% in the first half of 2026 to $1.15 per share, suggesting that it could end up exceeding expectations.

That's because DigitalOcean is building up a healthy revenue pipeline, as evident from a 17x year-over-year increase in its remaining performance obligations (RPO) in Q2 to $53 million. The company says that RPO refers to the "commitments in customer contracts for future services that have not yet been recognized." The metric jumped impressively as DigitalOcean sees a transition toward commitment-based agreements from usage-based agreements, giving it better revenue visibility.

This AI stock trades at just 15.7 times forward earnings. So, buying DigitalOcean looks like a no-brainer as its accelerating growth is likely to result in more upside on the market in the future.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, DigitalOcean, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.