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As artificial intelligence (AI) continues to transform industries, investors are showing great interest in AI hardware makers like Nvidia (NVDA).
Yet veteran value investor Bill Nygren believes that companies that use AI to enhance their businesses could enjoy the greatest long-term benefits. Nygren has identified Capital One Financial (COF) and Charter Communications (CHTR) as two companies that are effectively using AI in their businesses, creating durable competitive advantages.
Nygren’s thesis is rooted in the history of past tech revolutions. Previously, hardware manufacturers received early attention, but the long-term winners were those who managed to use technology to build lasting advantages. That’s what happened when computers arrived on the scene. Those who managed to capitalize on new technologies — such as Amazon (AMZN), Meta (META), and Alphabet (GOOGL) — were the long-term beneficiaries. AI, he thinks, will be no exception, with the biggest rewards going to those companies that use AI to augment their business models, as opposed to those actually producing the technology.
The following two stocks are under-the-radar AI beneficiaries.
Stock #1: Capital One Financial (COF)
Capital One Financial (COF) is a major financial services company that specializes in credit cards, consumer banking, and auto loans. Headquartered in McLean, Virginia, it has a market cap of $76.5 billion. Capital One is applying AI in fraud detection, credit underwriting, and automated customer service, which is strengthening its competitive standing in the financial sector.
Capital One’s stock has traded in a range of $128.23 and $210.67 in the past 52 weeks. The company, irrespective of the volatility in the markets, has continued to remain strong, reporting stable performance. Shares are up 10% in the year to date.
Capital One trades at 12.6x forward earnings, while the 1.39x price-sales and 8.44x price-cash flow suggest strong fundamentals. Capital One reported Q4 2024 EPS of $3.09, a 16.17% earnings surprise over the market’s expectations of $2.66. Looking ahead, Capital One’s EPS is expected to reach $15.65 in 2025, a year-over-year growth of 12.11%, and a further increase of 16.10% in 2026. Analysts’ consensus price target on the stock is $220.56, suggesting upside, with a high of $257.00 and a low of $176.00.
Stock #2: Charter Communications (CHTR)
Charter Communications (CHTR) is a large telecom and broadband firm that operates under the brand name Spectrum. It is based in Stamford, Connecticut, and has a market cap of $51.7 billion. Charter is using AI to optimize operational efficiency and customer service. AI-driven automation is reducing costs and enhancing the user experience, placing Charter at the leading edge of AI-driven telecom services. Charter's shares have moved in a range of $236.08 to $415.27 over the past year and are up 8% in the year to date.
Charter’s price-earnings ratio of 9.41x is lower than the industry average, while the price-sales ratio of 0.93x suggests the stock is possibly undervalued. For Q4 2024, Charter posted EPS of $10.10, exceeding expectations of $9.54 with a 5.87% earnings beat. Going forward, analysts anticipate that EPS will increase 9.12% in 2025, reflecting stable growth prospects.
These efficiencies powered by AI also reduce costs and enhance customer retention, positioning Charter as a leader in AI adoption in the telecom industry. Lastly, analysts have given Charter an average price target of $411.09, indicating roughly 10% upside. The highest price target sits at $665.00, and the lowest price target at $290.00.
The Bottom Line
While AI hardware stocks like Nvidia receive most of the hype, Nygren’s approach suggests that the ultimate AI winners might just be companies using AI to enhance their businesses. Two examples of these are Capital One and Charter Communications, both of which trade at reasonable P/E ratios. For those investors wishing to gain exposure to AI beyond semiconductor stocks, both these companies possess long-term promise at reasonable valuations.
