This Undervalued AI Stock Is Trading at a Discount to Its Peers. Here's Why It Won't Last

The theme of artificial intelligence (AI) has been driving the stock market higher for the past few years -- and that's pushed valuations of many AI players higher too. Investors have loaded up their portfolios with shares of these companies that, in some cases, already are seeing revenue soar. Two great examples are AI chip leader, Nvidia, and software company Palantir Technologies -- business at both is booming as customers pile into their AI offerings.

While Nvidia's stock isn't expensive at today's levels, it still is pricier than it was a few months ago. And Palantir's valuation has soared to a mind-blowing level, with shares trading for 229x forward earnings estimates.

This doesn't mean that every AI leader is trading at high levels, though. One major player actually trades at a discount to its peers right now, and it's even the cheapest of the Magnificent Seven tech stocks that pushed the S&P 500 to record highs in recent years. But keep in mind: This stock is available for a discount today, but this situation may not last for long. Here's why.

Image source: Getty Images.

"The most advanced AI"

The company I'm referring to is one that, early last year, said: "Moving forward, a major goal will be building the most popular and most advanced AI products and services." The company has poured investment into AI, progressively increasing this spending, and has made moves to hire AI experts and even created a superintelligence lab earlier this year.

This potential AI winner is Meta Platforms (NASDAQ: META), a company more commonly known for its social media platforms. It owns Facebook, Messenger, WhatsApp, and Instagram, and today, 3.5 billion people worldwide use at least one on a daily basis. This is key because advertising across these apps drives Meta's billion-dollar revenue.

So where does AI come in? As Meta chief Mark Zuckerberg said in the quote I mentioned above, the company aims to deliver AI that everyone can use -- for example, AI assistants. The company's assistant, Meta AI, already has more than one billion monthly active users. Such products are likely to keep users -- such as you and me -- on Meta's apps for longer periods of time. And this, along with Meta's efforts to use AI to improve the entire ad experience and boost results, should spur advertisers to spend more on advertising across Meta's platforms. Meanwhile, past and current advertising levels have delivered solid earnings growth over time.

A well-established business

So, while Meta is developing this potential new growth driver, the company offers investors the security of a well-established business. And all of this means Meta has the financial resources to continue along the AI investment path.

Meta also has a solid track record when it comes to benefiting from its investments, as you can see in the chart below that illustrates the company's return on invested capital (ROIC).

META Return on Invested Capital (Annual) data by YCharts

Now, let's consider Meta's current valuation. The stock, trading for 24x forward earnings estimates, is the cheapest of the Magnificent Seven tech stocks.

GOOG PE Ratio (Forward) data by YCharts

Each of these players is involved in the AI space to some degree, so each has the opportunity to benefit from this technology as the AI boom continues.

At today's level, Meta is attractive because it's cheap in relation to its peers -- and setting peers aside, Meta still looks like a bargain considering the complete picture, from the company's long-proven earnings strength to the possibility of major wins down the road in the area of AI. Meta also may benefit in the coming months as investors rotate out of AI stocks that have soared this year and turn to reasonably priced ones that are ripe for gains -- Meta has only climbed about 8% this year, underperforming the S&P 500.

So, today, as the valuations of many AI stocks climb, Meta looks particularly undervalued, but this situation may not last forever. That's why now is a great time for investors who are looking for a top AI stock that won't cost a fortune to snap up a few Meta shares and hold on as the company's AI plans develop.

Adria Cimino has positions in Amazon and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.