Al Root

With Tesla and Palantir trading at triple-digit price-to-earnings ratios, value investors might feel left out of the AI trade. But there are value AI stocks, too.

Value stocks typically trade at lower-than-average P/E ratios and operate in mature industries. They are the kinds of stocks Warren Buffett gravitates toward. Growth stocks tend to be more exciting, with big growth rates -- and sometimes big hype -- but they come with outsized valuations.

Take the most expensive and cheapest stocks in the S&P 500. Tesla trades at about 210 times its estimated earnings over the next 12 months. For shareholders, its fortunes are not tied to its legacy electric-vehicle business, but to all the potential earnings from AI-trained robotaxis and robots. That makes it a growth stock. On the other end, Charter Communications trades for less than five times earnings as investors weigh how to value a declining cable business. That makes it a value stock.

Most AI trades fall squarely in the growth camp. But not all. "AI is a value story," wrote Krishna Chintalapalli, a portfolio manager at Parnassus Investments, recently. "Value companies can improve their profitability and margin profile using the productivity gains from AI, creating compelling long-term opportunities beyond the typical growth narrative."

While some investors fixate on Nvidia chips or large language models such as Alphabet's Gemini, Chintalapalli is focused on utilities, backup-power providers, and real estate -- the physical infrastructure needed to support the AI boom.

Brookfield Renewable, one of the largest renewable-power generators with a portfolio of hydroelectric, wind, nuclear, and solar assets, is one of his AI data-center power plays. The company has agreed to provide power for Microsoft and Alphabet data centers, and its stock yields almost 4%.

Diesel-engine maker Cummins also builds backup generators. So does heavy-machinery maker Caterpillar, along with backup-power specialist Generac. "There is almost a 1:1 correlation, where growth in data centers leads to growth in demand for backup power," Chintalapalli says.

He is also looking for places where the digital world intersects with the physical one. "Legacy industries such as agriculture are...leveraging massive data moats to drive margin expansion and solve real-world problems," he says.

That led him to Deere, which he has held in a portfolio since 2022.

Deere leverages AI to help farmers cut costs -- by reducing labor required to operate equipment, minimizing wasted crop chemicals, and applying fertilizer more precisely where soil nutrients are deficient. Improved planting accuracy can also lead to higher yields, boosting farmers' revenue.

The five AI value ideas trade for an average of 15 times estimated 2026 earnings before interest, taxes, depreciation, and amortization, or Ebitda. That's roughly in line with the multiple of nonfinancial companies in the S&P 500.

That is higher than Charter's roughly 5.5 times multiple, but far below Tesla's 89 times multiple, making the group a reasonable starting point for investors looking to diversify beyond the market's most typical AI names.

Write to Al Root at allen.root@dowjones.com

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February 02, 2026 16:05 ET (21:05 GMT)

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