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Despite the 52% return in artificial intelligence and related (AI&R) stocks in 2023, as measured by the 91 constituent Global X Artificial Intelligence and Technology ETF (AIQ), a number of them exhibit more room to run in 2024 given their excellent valuation metrics as measured by their Price-to-Earnings (1-year) Growth Ratio over the next 12 months. 

Why the PEG Ratio?

Since growth is a key component of a stock's expected return, the inclusion of the growth rate gives the PEG ratio an advantage over the most commonly used alternatives such as the P/E ratio as it provides a fuller picture of a company's relative value in the market by incorporating earnings growth estimates offering a simple way for investors to see how cheap a stock is relative to its growth rate and for comparing stocks to competitors. The lower the PEG ratio - lower than 1.0 is best - the more the stock may be undervalued given its future earnings expectations while a ratio greater than 1.0 generally suggests a stock is overvalued.

The PEG ratio, however, shouldn't be used as a one-off test to decide whether to buy a stock or not. Instead, it's a good idea to use the PEG ratio along with other tools such as the balance sheet, debt burden, and cash flow, or other valuation metrics that use the income statement. It's also important to understand things like a company's competitive advantage, its addressable market, and its long-term growth prospects.

This article highlights 8 AI&R stocks in the Application (6) and Systems (1) Software and Semiconductor (1) sector industries with the best value going into 2024. The details are as follows in descending PEG ratio order.

The Best Value AI Stocks Portfolio

1. Nvidia Corporation (NVDA): PEG Ratio: 0.95
   • Sector Industry: Semiconductors
   • Market Capitalization: $1.2T
   • 2023 Return: 239%
2. Palantir Technologies (PLTR): PEG Ratio: 0.97
   • Sector Industry: Application Software
   • Market Capitalization: $37B
   • 2023 Return: 168%
3. UiPath (PATH): PEG Ratio: 1.24
   • Sector Industry: Systems Software
   • Market Capitalization: $14B
   • 2023 Return: 96%
4. Salesforce (CRM): PEG Ratio: 1.30
   • Sector Industry: Application Software
   • Market Capitalization: $255B
   • 2023 Return: 99%
5. Broadcom (AVGO): PEG Ratio: 1.58
   • Sector Industry: Application Software
   • Market Capitalization: $523B
   • 2023 Return: 100%
6. Allassias (TEAM): PEG Ratio: 1.63
   • Sector Industry: Application Software
   • Market Capitalization: $61B
   • 2023 Return: 83%
7. Dell Technologies (DELL): PEG Ratio: 1.68
   • Sector Industry: Application Software
   • Market Capitalization: $54B
   • 2023 Return: 84%
8. Advanced Micro Devices (AMD): PEG Ratio: 1.74
   • Sector Industry: Application Software
   • Market Capitalization: $238B
   • 2023 Return: 114%%

It will be interesting to see just how the performances of the above 8 stocks pan out in 2024 and, as such, the portfolio's performance will be tracked on a regular basis. It will be a good test as to the merits of the PEG ratio as a valuation metric.

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