The AI sector has been a hotbed of innovation and growth, with several companies vying for attention. The AI5 stocks – Microsoft MSFT, Taiwan Semiconductor Manufacturing Co. TSM, Broadcom AVGO, Nvidia NVDA, and Advanced Micro Devices AMD stand out amid the crowd as leaders in the race for AI dominance. Nvidia being an undisputed champion among them.
While Nvidia stock has soared 239.50%, AMD stock has gained 121.49% over the past year. Broadcom stock follows next at 109.12%, followed by Microsoft stock up 56.58% and TSM stock up 40.61%.
Clearly, the rise and rapid adoption and spread of artificial intelligence has 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.
Why Valuation Matters
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.
As intrinsic valuations of these stocks play catch-up with surging stock prices, valuation gains in importance. Usually, in such a scenario, investors want to know which stock’s price hasn’t got much ahead of its intrinsic valuation.
Seeking Undervalued AI5 Stocks
We looked at the AI5 stocks – Microsoft, TSMC, Broadcom, Nvidia, and AMD, to figure 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: so investors can assess the relative valuation of AI stocks based on their earnings generation.
- Enterprise Value-to-Sales (EV/Sales) Ratio: 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
TSM Stock – Potential Upside
Data in the table above 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 (Feb. 13) 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.