Citi names undervalued AI stocks poised for rerating

Citi has identified several undervalued global stocks exposed to artificial intelligence that present substantial investment opportunities. The Wall Street bank said these stocks have seen improved earnings expectations but have not experienced significant increases in their valuations, making them attractive for investors looking to capitalize on the AI trend without paying premium prices. This year, the global equity market has received a substantial boost from AI-related stocks. AI has driven approximately half the 11% return in the MSCI All Country World Index so far, according to Citi. That’s despite AI-exposed stocks accounting for only 14% of the index’s total market capitalization. The picture resembles the S & P 500 , where mega-cap stocks focused on AI have driven much of the rally. “This cohort of stocks has generally benefitted from rising multiples and improving 2024 earnings estimates,” said Citi strategists led by Drew Pettit and Beata Manthey. While many AI stocks have benefited from both expanding multiples and upward earnings revisions, Citi has identified a subset of 19 stocks that buck this trend. The bank says these stocks largely have “medium” exposure to AI. The investment bank’s analysts hiked their 2024 earnings estimates for these stocks, but they have not yet experienced significant price-to-earnings expansion. Among the companies highlighted in Citi’s screen are well-known names such as Digital Realty Trust , Airbnb , and Apple . The research note points out that “each of these names are AI laggards year-to-date” but where “returns are positive, and momentum has improved of late.” Other notable companies on the list include Toyota Motor , Visa , ServiceNow and Samsung Electronics . These stocks represent various sectors and geographies, indicating that AI’s impact is globally widespread. Citi’s analysis reveals that high AI exposure stocks have seen a 36% return year-to-date, with 22% driven by price-to-earnings ratio expansion and 14% by upward earnings per share revisions. This dual tailwind of improving valuations and fundamentals has not been present in stocks with medium or low AI exposure — such as those in the table above. — CNBC’s Michael Bloom contributed reporting.