The AI sector has been a hotbed of innovation and growth, with several companies vying for attention. Among these, Microsoft, Taiwan Semiconductor Manufacturing Co., Broadcom, Nvidia, and Advanced Micro Devices stand out as leaders in the race for AI dominance. Nvidia being an undisputed champion among them.
The Growing Importance of Valuation
In the past year, Nvidia stock has soared 239.50%, while AMD stock has gained 121.49%. Broadcom stock follows next at 109.12%, followed by Microsoft stock up 56.58% and TSM stock up 40.61%. The rise and rapid adoption of artificial intelligence have indeed fueled these technology stocks to new heights. As the stock price rises, the price-to-earnings ratio of a company’s stock also increases if earnings do not grow at a similar rate.
Although all five AI5 companies are profitable and generate significant revenue, investors still seek assurance on the value of their investments before making a decision. Investors are increasingly realizing that valuation speaks louder than price.
Identifying the Most Undervalued AI5 Stock
We delved into the valuations of Microsoft, TSMC, Broadcom, Nvidia, and AMD to figure out which stock appears to be the most undervalued right now. We looked into two multiples to get a clearer picture on valuations.
- Price-to-Earnings (P/E) Ratio: This helps investors assess the relative valuation of AI stocks based on their earnings generation.
- Enterprise Value-to-Sales (EV/Sales) Ratio: This is useful as AI stocks may not have consistent profits but have strong revenue growth.
| Stock | P/E FWD | EV/Sales |
| Microsoft | 34.57 | 13.33 |
| NVIDIA | 58.60 | 39.81 |
| AMD | 47.79 | 12.27 |
| TSM | 20.19 | 7.69 |
| Broadcom | 26.60 | 16.99 |
Data source: Seeking Alpha
Analyst Expectations for TSM Stock
The data clearly shows the relative undervaluation in Taiwan Semiconductor stock. Having gained the least among the AI5 stocks, TSM stock appears to still have room to run. The consensus analyst rating on the stock is a Buy. Susquehanna recently reviewed the stock and rated it Positive with a price target of $160, implying a 26%+ upside from current stock levels.
TSM Price Action: Shares of Taiwan Semiconductor were trading at $126.69 at the close of Feb. 18.
