AI Stocks: Bargain Opportunities?

AI Stocks: Are There Bargains to Be Found?

The artificial intelligence sector is experiencing rapid growth, making it an appealing investment area. However, the excitement around AI has led to increased stock prices and inflated valuations for numerous tech companies. Fortunately, some AI investment opportunities remain.

Taiwan Semiconductor Manufacturing (TSMC), also known as TSMC, which Nvidia uses to produce its AI chips, is one such option. Super Micro Computer, referred to as Supermicro, and Google's parent company, Alphabet, are two additional possibilities. Compared to Nvidia, these three AI stocks have lower price-to-earnings ratios, suggesting they are trading at more attractive valuations.

These companies have faced headwinds that have negatively impacted their stock prices, including global economic uncertainty caused by tariff policies. However, the long-term growth potential of AI is expected to benefit each company's business.

TSMC

TSMC is a strong investment choice due to its leadership in manufacturing chips for AI processing. Its expertise in producing 3-nanometer (nm) chips efficiently and in large volumes is driving sales growth. This technology accounted for 22% of the company's $25.5 billion in first-quarter revenue, an increase from 9% the previous year. TSMC is also developing its next-generation 2nm technology, with production expected to begin later this year.

TSMC's Q1 sales grew by 35% year over year to $25.5 billion. Additionally, its Q1 gross margin increased to 58.8%, up from 53.1% in the prior year. The company forecasts Q2 revenue between $28.4 billion and $29.2 billion, representing a rise of at least 37% from the prior year's $20.8 billion. TSMC has also secured $6.6 billion in federal funding through the CHIPS Act to establish semiconductor fabrication facilities in the U.S., positioning it for long-term growth.

Supermicro

Supermicro provides servers and data storage solutions for businesses creating AI systems. The company experienced challenges in 2024, including the resignation of its auditor, which negatively impacted its stock. Supermicro's fiscal 2025 Q3 revenue reached $4.6 billion, a 19% increase year over year. The result did not meet the company's forecast of at least $5 billion due to customer purchasing delays, according to CFO David Weigand.

Like TSMC, Supermicro is affected by the current macroeconomic situation and tariffs in the short term, but AI's growth is expected to support the company over time. The AI market is projected to grow from $184 billion in 2024 to $826 billion by 2030. Supermicro anticipates fiscal 2025 sales between $21.8 billion and $22.6 billion, a substantial increase from the prior year's $14.9 billion. The company's sales of $16.2 billion through the first three quarters of fiscal 2025 have already exceeded the previous year's total revenue, making its revenue goal for the year attainable.

Alphabet

Alphabet, Google's parent company, is making significant investments in AI, spending $52.5 billion in capital expenditures last year to develop advanced AI systems. AI is now integrated into every Alphabet product with at least half a billion users. The integration of AI into products like Google's search engine and Google Cloud contributed to double-digit year-over-year sales growth in Q1. Google's revenue reached $50.7 billion, and its cloud division earned $12.3 billion. Alphabet's total Q1 revenue increased to $90.2 billion, up from $80.5 billion in 2024.

Waymo, Alphabet's self-driving car business, is another example of the company's AI achievements. Waymo's service uses AI for autonomous driving and provides over 250,000 passenger rides per week, a fivefold increase from last year. Alphabet's stock has declined partly due to current macroeconomic conditions and antitrust cases. However, the company can appeal these decisions, mitigating their potential impact on its business.

Despite facing headwinds that have lowered share prices, TSMC, Supermicro, and Alphabet present a buying opportunity for long-term investors. The AI market's continued expansion and the success these companies have demonstrated with AI position them for future growth, and their current stock valuations make them attractive investment options.