2 Artificial Intelligence Stocks That Could Be Too Cheap to Ignore Right Now
Artificial intelligence (AI) stocks rarely come with the label "cheap," but two companies stand out as potential bargains. Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Taiwan Semiconductor Manufacturing (NYSE: TSM) both look undervalued, though for different reasons. In a market where valuations are stretching higher, these stocks offer strong value and deserve attention.
1. Alphabet
Alphabet is the parent company of Google, YouTube, Waymo, and Android. Despite this diverse portfolio, most of Alphabet’s revenue comes from one place: advertising. The main concern is that Google Search, responsible for 56% of the company’s revenue in Q1, faces pressure from generative AI technologies.
Google Services, which includes Search, posted a 42% operating margin—a key driver of Alphabet’s overall profits. This segment supports various Alphabet projects that currently don’t generate profits, making its continued strength vital.
However, Google’s market share has dipped below 90% for the first time since 2015. Many analysts and tech experts have shifted to generative AI tools, forecasting challenges for Google Search. This skepticism has pushed Alphabet’s stock down, trading at about 19 times forward earnings compared to the S&P 500’s 23.7 times.
Despite concerns, Google Search revenue grew 10% year over year in Q1, signaling resilience rather than decline. Most users still prefer Google’s search experience over newer AI alternatives. Alphabet’s upcoming Q2 earnings report should provide more clarity, but current data suggests Google Search remains healthy and could drive stock gains.
2. Taiwan Semiconductor Manufacturing (TSMC)
TSMC is the leading chip foundry globally, producing chips for companies like Apple and Nvidia. Unlike competitors, TSMC doesn’t sell chips directly to consumers, which reassures clients they won’t face competition from their supplier.
TSMC stays ahead by adopting cutting-edge chip technology. The company plans to launch a 2-nanometer chip node later this year and a 1.6-nanometer version in 2026. This leadership has resulted in strong demand, with clients placing orders years in advance, giving TSMC clear insight into market trends.
Management projects a 45% compound annual growth rate (CAGR) in AI-related revenue over the next five years and nearly 20% CAGR in total revenue. Such growth would outpace the market significantly. Despite this, TSMC trades at about 24.9 times forward earnings, only slightly above the broader market multiple, making it undervalued given its growth potential.
For finance professionals, TSMC’s position in the chip fabrication space and its growth outlook make it a stock worth considering before valuations catch up with projections.
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