2 Undervalued Chip Stocks to Buy
I generally don’t like to tell people to buy certain stocks because if it doesn’t work out, I’m the one who gets blamed. Remember that these articles are my thoughts about the market and are not to be taken as financial advice! I often target undervalued stocks or stocks that haven’t moved like the rest of the markets. This is either a good indicator that they are about to make a move or it allows me to identify things that might be holding that company back.
So far this year, there has been no shortage of overperforming tech stocks. We all know about NVIDIA ($877.35|6.18%) or Super Micro Computers (NASDAQ: SMCI), but what about the other stocks that haven’t received as much love from investors? These are no guarantees, but here are 2 undervalued tech stocks I’m looking to buy.
Taiwan Semiconductor Manufacturing Company ($138.3|1.26%)
Wait how can one of the largest and most important companies in the world be undervalued? Well, look at how its peers have traded so far this year and then think about this: without TSMC, none of these semiconductor companies would be able to sell their high-powered chips.
That’s right, TSMC makes most of the powerful AI chips that are fueling the massive sales growth of companies like NVIDIA and AMD (NASDAQ: AMD). TSMC also counts the likes of Apple (NASDAQ: AAPL), Intel (NASDAQ: INTC), Broadcom (NASDAQ: AVGO), and Qualcomm (NASDAQ: QCOM) among its partners. Basically, if you’re a major chip company, you rely on TSMC to make the chips for you.
AI chips are expected to be a multi-trillion-dollar industry in the coming years. On top of all of this, TSMC is trading at way lower multiples than the rest of its peers and the NASDAQ 100 stocks. Shares of TSMC are trading at about 10 times sales and have a forward P/E of 21. For a company that has a 5-year revenue CAGR of 16%, we should see those multiples continue to compress and the market capitalization of the company rise. Finally, TSMC even pays a dividend to its shareholders. The most recent distribution was announced to be $0.54 per share, giving it a yield of about 1.5%.
Micron Technology (NASDAQ: MU)
Micron is another semiconductor stock that doesn’t get much love from investors. Ahead of its earnings next week, it certainly is getting love from analysts! Micron received two analyst upgrades this week with new price targets of $120 and $150.
It is an AI-related chip stock so it should get a healthy bump, especially if it beats expectations and raises full-year guidance. I’m interested in Micron because it’s only gained about 13% year-to-date and is trading at just 6.3 times sales and 10.05 trailing earnings. Those are pretty cheap multiples for a growth stock that deals with AI. This earnings call might be the last time it trades under $100 for a while so add Micron to your list of stocks that are undervalued and worth picking up!
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