It almost goes without saying that investors looking for the best AI stocks to buy now should purchase shares of Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA). These technological giants are going to play a huge role in the future of artificial intelligence. They are already leading the way and have deep pockets that will allow them to fund research to make sure they stay at the front of the pack.

That said, given the hype surrounding AI, both stocks have made big runs this year, with MSFT rising nearly 30% and NVDA up 95%. While both stocks are likely to see further gains, neither looks particularly cheap at the moment. For instance, MSFT is trading at 11.3 times sales compared with its five-year average price-to-sales (P/S) ratio of 10.1. NVDA, meanwhile, has a P/S ratio of 26.9, well above its five-year average of 17.6.

So, traders looking for cheap AI stocks with huge potential need to dig a little deeper and go beyond the most obvious plays. A good place to start the search is with one of the largest AI exchange-traded funds (ETFs), the Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ). It has $1.75 billion in net assets and 44 holdings. 

I screened its holdings for stocks with P/S ratios considerably lower than Microsoft’s. Given the tremendous growth potential of AI, profitability was not a consideration.

Here are three cheap AI stocks to watch… or buy if you’re feeling brave. 

Berkshire Grey (BGRY)

First up is Berkshire Grey (NASDAQ:BGRY), which provides “AI-enabled robotic solutions that automate fulfillment processes for customers within the retail, eCommerce, grocery, package handling, and logistics industries.” With a market cap of $338.3 million, it is barely out of microcap territory. And with a share price of less than $1.50, it is most definitely in penny stock territory. 

The company generated $65.9 million in revenue in 2022, 29.5% higher than a year earlier. The problem is that its cost of revenue was $71.1 million, resulting in a gross loss of $5.3 million for the year. The good news is the gross loss was 36% lower year over year. 

Make no mistake, Berkshire Grey is far from a slam dunk. However, its potential is enticing. The company completed 71 installations of its advanced robotics solutions last year and began 2023 with a backlog of $100 million. Its total orders since inception hit $265 million at the end of last year. The company noted that it achieved positive gross margin in Q4. If it can string together about 12 more quarters like that, BGRY will no longer be a penny stock. 

“Our customers are impressed with the ability of our AI-enabled robotics solutions to increase efficiency and drive out costs across their logistics operations,” said Chief Executive Officer (CEO) Tom Wagner in the earnings press release. 

In April, Berkshire Grey announced a partnership with Hy-Tek Intralogistics, which saw the company’s Robotic Shuttle Product Sortation systems installed at the Bealls warehouse in Jacksonville, Texas. The system’s installation has improved the retailer’s productivity by 33%, according to the company.  

As AI becomes more prevalent across industries and sectors, Berkshire Grey’s products should gain greater traction with customers. Trading at less than 5 times sales, expansion of the valuation multiple should deliver a higher share price 12-24 months from now. 

Cerence (CRNC)

When you’ve been writing about investing for as long as I have, it’s rare to come across a company you haven’t heard about before. When I saw Cerence (NASDAQ:CRNC) on the BOTZ holdings list with its nearly $1 billion market cap, I assumed the company must have changed its name. I was right, kind of. 

Cerence, a leader in “automotive assistants, creating intelligent, flexible and intuitive in-car experiences for the world’s leading automakers,” was spun off by Nuance Communications in October 2019.  (And Nuance was acquired by Microsoft last year.) Cerence’s automotive partners include Mercedes-Benz (OTCMKTS:MBGAF), Nio (NYSE:NIO), Volkswagen (OTCMKTS:VWAGY) and Toyota (NYSE:TM).

At the time of the spinoff, Cerence powered AI in more than 280 million vehicles around the world across more than 70 languages. Today, more than 475 million cars are equipped with Cerence’s technology, or about half of the world’s cars, according to the company. And the company said in its latest earnings release that 53% of new cars being produced use its technology.  

The company reported its fiscal second-quarter results on May 9. Revenue of $68.4 million exceeded expectations and Cerence posted a smaller-than-expected loss of 4 cents per share.

For the current fiscal year, which ends in September, the company said it expects to earn $285 million. While that represents a drop of 13% from the previous year, analysts are forecasting more than 30% revenue growth in fiscal 2024. And management is forecasting positive adjusted EBITDA of $30.5 million for fiscal 2023 at the midpoint of guidance.

Should the company see a strong second half, its guidance may wind up being conservative. Trading at 2.9 times sales, shares look cheap.   

Upstart Holdings (UPST)

Although Upstart Holdings (NASDAQ:UPST) is up nearly 30% YTD, it is nowhere near the all-time high it reached in October 2021 above $400 a share. A tech meltdown will do that.  

The company gained popularity during the pandemic because of its AI lending platform that helped its bank partners make better underwriting decisions. Using Upstart, its banking partners originated 1.3 million loans in 2021. Unfortunately, higher interest rates and a possible recession put an end to banks chasing as many loans as possible. It’s hard to know when they will again.

As a result of the changing lending environment, Upstart’s profits turned to losses. In the trailing 12 months, its pre-tax loss was $271 million on $631 million in revenue. 

The company reported first-quarter results on May 9. While revenue was 67% lower year over year and it lost $132 million from its operations, it did have some positives to report. They included an upbeat outlook and progress on finding additional funding. Shares jumped 35% in a single day on the news before giving back some gains. 

For the second quarter, the company forecast $135 million in revenue, $10 million higher than the consensus estimate. It expects to break even on an EBITDA basis compared to a $14 million loss expected by analysts. 

“Despite the headwinds facing our industry, we secured multiple long-term funding agreements, together expected to deliver more than $2 billion to the Upstart platform over the next 12 months,” CEO Dave Girouard said.

Trading at less than 2.5 times sales, the upbeat guidance suggests its valuation is going to get an upgrade in the coming quarters. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.