The AI trade has gotten quite crowded in recent months, and though some of the names felt a notable increase in turbulence at the end of last week, I think it’s too soon in the game to be ringing the alarm bell. Though various AI stocks have gone parabolic of late, there’s still more of a sense of cautious optimism rather than outright euphoria surrounding AI-exposed tech stocks.
AI is a profound technology that’s sure to cause revisions in estimates on both sides. Thus far, however, analysts’ upward revisions (especially regarding AI chip stocks) seem to have been a bit more drastic.
Let’s check out three of the more underrated AI stocks that may still be subject to sudden upgrades should they be able to leap over the estimates that are currently in place. With somewhat muted expectations, especially for AI innovators, the following are worth checking out should bargain-hunting season be upon us.
Super Micro Computer (SMCI)
Super Micro Computer (NASDAQ:SMCI) hardly seems like an underrated AI stock, not after soaring close to 300% in the past year. However, it’s this incredible long-term chart that may have investors starting to underestimate the firm, especially now that the stock’s started gravitating lower.
Now off more than 22% from its all-time high hit back in March, it seems like traders are approaching the data center firm with a tad more caution, as they should. Indeed, SMCI stock looks like it’s about to roll over, even as it continues riding high on the AI tailwind that pretty much everybody is aware of by now.
At 25.38 times forward price-to-earnings (P/E), I fail to see how SMCI stock can be considered a bubble. It’s never fun to buy a stock after an already remarkable run, but Super Micro still has the means to supercharge growth further. With the firm to help supply Elon Musk’s xAI supercomputer, the beginning of the end for Super Micro’s growth boom may not be here quite yet.
Taiwan Semiconductor (TSM)
As AI chip demand stays strong, Taiwan Semiconductor (NYSE:TSM), the firm that makes the chips, is going to continue doing well. Still, Taiwan’s close proximity to China entails unique geopolitical risks that may make TSM stock somewhat “less investable” compared to most other global AI plays.
At 28.6 times forward P/E, the $902 billion Taiwan-based foundry giant still seems a bit conservatively priced, given what it stands to gain from this global AI boom. At this pace, Taiwan Semiconductor stands out as a firm that’s well on its way to cracking the $1 trillion club.
Recently, Bernstein analyst Mark Li hiked its price target to $200 from $150. That’s a big price hike, largely due to Li’s belief that earnings growth could be markedly higher from here on the back of AI-driven demand from data centers and AI devices (think AI-enabled smartphones).
Lam Research (LRCX)
Lam Research (NASDAQ:LRCX) is a semiconductor equipment maker that recently hit new highs above $1,000 per share. After surging 146% in two years, the stock has enjoyed a great deal of multiple expansion. At writing, LRCX stock goes for 29.2 times forward P/E, well above historical averages. As AI chip demand rockets, foundries are going to need more Lam equipment to boost their production capacity.
As the Chinese markets look to get more aggressive over the next year, Lam’s run may be far from over. Specifically, analysts over at Raymond James see a high-bandwidth memory boom as a “multi-year tailwind” for the company. Indeed, it’s a notable tailwind and one that may not be reflected in shares quite yet.
Sure, LRCX stock is on the expensive side, but given the magnitude of tailwinds, which could come into full force next year, the name may not be as expensive as it looks.
On the date of publication, Joey Frenette did not hold (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.