Strangely, it gave me two answers and asked me to pick which one was best… I guess that’s why we’re still training it.

The stocks it gave me were ASML and AMD. Two great companies, one known for its advanced lithography machines and the other for its chips and servers for AI.

While these are great companies at the heart of the AI revolution, ChatGPT made no attempt to address their valuations as stocks. And valuation’s the most important part.

Because there’s absolutely no point investing in the most promising companies in the world if they already vastly overvalued.

For me, ASML and AMD are great companies, but the valuations don’t offer a huge margin of safety at this moment in time.

Alternative No 1

One potentially undervalued way to gain exposure to the AI infrastructure boom is Seagate Technology (NASDAQ:STX).

The shares have been among the S&P 500’s top performers in 2025, driven by surging demand for high-capacity storage used in cloud computing and AI inference.

Recent results were strong, with a clear beat-and-raise quarter, expanding margins above 40%, and management lifting guidance.

Seagate’s investment case is also reinforced by its cash-generation profile. In the most recent quarter, the group produced more than $500m of operating cash flow and over $400m of free cash flow, with margins benefiting from a richer mix of high-capacity Nearline drives sold into cloud and AI workloads.

Importantly, valuation still looks reasonable. Seagate trades on a forward price-to-earnings of around 23 times, broadly in line with the sector, but its forward price-to-earnings-to-growth ratio of about 0.9 is materially cheaper than peers. This suggests earnings growth isn’t fully priced in.

The main risk is execution and competition. A stumble in the rollout of HAMR (Heat-Assisted Magnetic Recording) drives or market share gains by Western Digital could pressure margins and sentiment.

Alternative No 2

Investors looking beyond obvious AI winners may want to consider Dominion Energy (NYSE:D). The company sits at the centre of Northern Virginia’s data-centre boom, a region often described as the backbone of global cloud and AI infrastructure.

Crucially, Dominion earns regulated returns on the grid upgrades and generation capacity required to meet that demand. This gives growth a level of predictability unusual in AI-linked themes.

But the growth vectors are there. Data centres are becoming so power-intensive that electricity availability — not chips — is increasingly the binding constraint.

It’s also been reported that Dominion wants to buy Northern Virginia Electric Cooperative. The move that would expand the utility’s reach in a key part of the global data centre market.

Valuation supports a bull case. Shares trade on roughly 17 times forward earnings, around 8% below the sector median. Income provides an additional cushion. Dominion’s 4.4% dividend yield sits well above the sector average.

The risk is execution. Dividend growth has stalled, the payout ratio is over 80%, and large capital projects must stay on budget and within regulatory frameworks.

Even so, for investors seeking income backed by structural growth, Dominion looks to be worth considering.

The post I asked ChatGPT to pick an undervalued AI stock for my ISA! Here’s what it said… appeared first on The Motley Fool UK.