These Are Two Tech Stocks That Are Clearly Underpriced

The S&P 500 index is up 10% in a few months, starting the year well. As stock prices climb, real deals are harder to find. Still, some stocks are good deals. Investment bargain hunters can find fantastic value in AT&T (NYSE: T) and International Business Machines (NYSE: IBM), which have rallied with the market.

An undervalued telecom titan, AT&T has changed significantly in recent years. The telecom company failed to become a media behemoth by buying media companies and accumulating massive debt. After some time, AT&T has mostly eliminated its non-wireline activities.

Despite investing extensively in 5G and fiber, AT&T is increasing its free-cash-flow generation. Debt levels remain a concern. In 2023, the company generated $16.8 billion in free cash flow and expects $17 billion to $18 billion this year.

AT&T keeps adding cellphone subscribers. It added 1.7 million net postpaid phone subscribers in 2023 and had its biggest operational income ever in mobility. AT&T increased fiber revenue 27% and added 1.1 million net subscribers. The stock trades cheaply based on AT&T's midpoint free-cash-flow estimate. With $126 billion in market cap, the price-to-free-cash-flow ratio is 7.2.

AT&T's success depend on the economy and consumer demand for new handsets and expensive wireless plans. Without the media distraction and focusing on cellular and fiber, AT&T stock can produce substantial returns for investors as pessimism lifts.

Enterprise AI leader Major corporations, especially those in heavily regulated industries, face distinct AI adoption problems. Customer and private data must be protected, regulations followed, and dangers minimized.

Although powerful, advanced AI models still have issues like hallucinations and training data leaks. Watsonx, IBM's enterprise AI platform, can help. Customers may train, validate, and deploy generative AI models, store the vast data needed to train them, and monitor AI applications to avoid failure.

IBM is still building watsonx into a large business, but the results are promising. After watsonx components were accessible, generative AI bookings reached the low hundreds of millions of dollars by the third quarter. Demand continued robust, double that amount by the fourth quarter.

IBM's consulting business drives two-thirds of generative AI business, making it its secret weapon. Advanced AI platforms, advice, experience, and integrated solutions are needed by enterprises. IBM offers all of the aforementioned.

IBM stock has risen, making it more expensive than a year ago. A price-to-free-cash-flow ratio below 15 sounds like a steal with free cash flow forecast to reach $12 billion this year. IBM wants to lead enterprise AI, a billion-dollar potential.

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