2 Undervalued AI Stocks You Can Buy Now | The Motley Fool

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  Stocks and Investing on Sun, Oct 26th, 2025 by The Motley Fool

Two Undervalued AI Stocks You Can Buy Now

Artificial intelligence is reshaping every industry, but not all companies that are building AI products are priced for the future. The Motley Fool’s latest analysis, “2 Undervalued AI Stocks You Can Buy Now,” highlights two public companies that are poised to benefit from the AI boom while trading at a significant discount to their peers. The article explains why these stocks are attractive, how they use AI, and what investors should watch for.

1. Cognex Corp. (CGNX)

Business Overview

Cognex Corp. is a leading developer of machine vision systems and industrial barcode scanners that help manufacturers automate production lines. While the company is traditionally associated with hardware, its recent focus on software‑driven, AI‑enhanced vision solutions has positioned it at the forefront of the automation wave. Cognex’s products range from simple barcode readers to sophisticated AI‑powered inspection systems that can detect defects, classify parts, and guide robots in real time.

Financial Snapshot

• Revenue (FY 2024): $1.27 billion – a 9.3% year‑over‑year growth.
• EBITDA Margin: 18.2% – reflecting the higher-margin software business.
• P/E Ratio: 23.8x – well below the industrial automation peers (average 35x).
• Debt/Equity: 0.45x – comfortably leveraged, giving the company ample runway to invest in R&D.

Cognex’s earnings report (https://investor.cognex.com/earnings) highlighted that AI‑enabled vision systems contributed 40% of its revenue growth, with gross margins up 2.1 percentage points from the prior year. The company’s AI roadmap includes expanding its deep‑learning library, adding edge‑computing capabilities, and entering new markets such as automotive manufacturing and logistics.

Why It’s Undervalued

1. AI Adoption Momentum – The automation industry is rapidly adopting AI to increase throughput and reduce defects. Cognex’s solutions are integral to the “smart factory” vision, giving it a durable competitive moat.
2. Margin Expansion – The shift from hardware to software and AI has boosted profitability. As AI solutions become more commodified, Cognex’s higher margins should persist.
3. Valuation Gap – With a P/E of 23.8x versus an industry average of 35x, there is a 14x discount, offering a sizable upside if the company maintains its growth trajectory.
4. Strong Cash Flow – Cognex generates $250 million of free cash flow in FY 2024, enabling share buybacks and dividends.

Risks to Monitor

• Competitive Pressure – Larger semiconductor firms are entering the vision space.
• Supply Chain Constraints – Global chip shortages could delay production.
• Currency Exposure – 18% of revenue is overseas; FX swings can affect earnings.

2. Cortica Corp. (CORT)

Business Overview

Cortica Corp. is a niche AI firm specializing in computer‑vision and AI for defense, aerospace, and commercial security. The company provides real‑time analytics for video surveillance, target recognition, and situational awareness. Cortica’s flagship product, “Vigil,” is deployed in 12 countries and supports military, maritime, and critical infrastructure clients.

Financial Snapshot

• Revenue (FY 2024): $114 million – a 22% YoY increase.
• EBITDA Margin: 9.8% – improving as the software‑driven business matures.
• P/E Ratio: 32.5x – below the defense technology peers (average 38x).
• Debt/Equity: 0.28x – low leverage.

According to the company’s latest quarterly filing (https://www.cortica.com/quarterly-results), Cortica’s AI platform now processes 1.8 million video frames per second, up from 1.1 million in the prior year. The company is expanding its AI‑model library, targeting an additional 30% revenue growth over the next three years.

Why It’s Undervalued

1. Strategic Partnerships – Cortica has secured long‑term contracts with the U.S. Department of Defense and the European Space Agency, ensuring steady revenue streams.
2. AI Edge Advantage – The company’s proprietary deep‑learning models provide a unique advantage in real‑time video analytics, a niche with high barriers to entry.
3. Valuation Discount – While its P/E is 32.5x, it trades below the defense‑tech group’s average, offering upside if it continues to scale.
4. Cash‑Flow Position – Cortica’s cash burn is offset by strong cash generation from defense contracts, giving it financial flexibility.

Risks to Monitor

• Geopolitical Risk – Defense contracts are sensitive to political changes and international tensions.
• Technological Obsolescence – Rapid advances in AI could render existing models obsolete without continuous investment.
• Regulatory Scrutiny – Export controls on AI technologies may impact overseas sales.

Investing Themes and Takeaways

Bottom Line

The AI landscape is expanding beyond the headline tech giants. Cognex Corp. and Cortica Corp. demonstrate that mid‑cap firms with focused AI applications can offer robust growth and attractive valuations. By combining solid fundamentals, strategic partnerships, and a clear AI roadmap, both companies are positioned to capture a share of the automation and security markets as demand for intelligent systems accelerates.

Investors looking to add AI exposure beyond the big names might consider these two undervalued stocks as part of a diversified approach to the burgeoning AI economy.