The Deep Value Play for Growth Investors Isn't Artificial Intelligence, It's This Forgotten Industry

Investing in artificial intelligence (AI) stocks has been all the rage in recent years. Nvidia, Palantir Technologies, and Broadcom have been among the most popular investments due to their impressive results and growth potential.

But valuations are high, and talk of a bubble having formed is undeniable. While there may still be room for AI stocks to rise higher, there's also plenty of room for them to crash if there are cracks in their growth stories.

For growth investors seeking deep value stocks that truly offer considerable upside, there may be another industry to focus on instead, one that's been largely forgotten: cannabis.

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Why there may be a resurgence in the cannabis industry

Marijuana legalization isn't on the horizon, but under the Trump administration, there has been a greater push for reform. Earlier this year, regulators moved forward with plans for rescheduling medical marijuana from a Schedule I substance to Schedule III, which was seen as a big win for the industry, potentially paving the way for future legalization. While the rescheduling process has recently been delayed, causing concern among cannabis investors, it's still expected to take place.

And despite marijuana remaining illegal at the federal level, cannabis companies have continued to operate in the U.S. for years, as marijuana is legal in dozens of states. While crossing state lines remains illegal, companies have still been able to amass significant sales numbers. Curaleaf Holdings (OTC:CURLF) is a leader in the industry, generating $1.3 billion in revenue in the trailing 12 months. Other companies in the industry that have generated over $1 billion also include Green Thumb Industries and Trulieve Cannabis.

Greater reform in the industry could, however, unlock more opportunities and efficiencies that can drastically improve their financials and long-term growth prospects.

Legalization could also lead to job growth and boost the economy. It has the potential to be a compelling election issue to watch for in the future, which could make cannabis stocks much more attractive investments.

There is significant upside potential for investors willing to take on some risk

Curaleaf is a top cannabis company, but it has still experienced a 73% loss in value over the past five years. Even though it's doing well and growing its operations, it's the lack of reform, legalization, and optimism around the industry that's been weighing on it and other cannabis stocks.

However, with a low market cap of $2.4 billion, this is precisely the type of growth stock that I could see go to 10x its value in the future. There would need to be further reform in the industry, which is by no means a certainty, but I believe there is plenty more upside with investing in the top cannabis stocks than there is chasing already highly valued AI stocks.

Investors, however, will need to be patient and be willing to hunker down for the long haul with these types of investments, as there's no guarantee as to how long it'll take for there to be a catalyst that sends their valuations higher.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom, Nvidia, and Palantir Technologies. The Motley Fool recommends Green Thumb Industries. The Motley Fool has a disclosure policy.