In this article:
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Google Search is retaining its dominance despite many calling for its downfall.
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Taiwan Semiconductor is benefiting from massive AI spend.
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The Trade Desk recently stumbled following earnings.
Finding bargain artificial intelligence (AI) stock isn't easy. There are many overvalued and overhyped AI stocks out there, and it's easy to get caught up in some of those investments. However, there are still plenty that I would consider undervalued, despite solid long-term prospects.
Three that fall into this classification for me are Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Taiwan Semiconductor (NYSE: TSM), and The Trade Desk (NASDAQ: TTD). All of these look like excellent buys now, and I'd expect each of their stocks to skyrocket by 2030, partly due to undervaluation.
Alphabet is the parent company of Google, among many other brands. However, its Google Search engine brings in the majority of the revenue, but it's also under scrutiny. Many investors are worried about generative AI models replacing Google Search, which would be a massive headwind for Alphabet.
As a result, the market has given Alphabet a cheap stock price.
Although it has had a strong recovery in recent months, Alphabet is still cheaper than the S&P 500 (SNPINDEX: ^GSPC), which trades for 23.7 times forward earnings.
However, I think this discount is unwarranted. Google Search has already integrated AI search overviews as a way to make a hybrid AI and traditional experience. Google Search also delivered strong revenue growth in Q2, rising 12% year over year.
I think Google will remain on top despite rising competition, and long-term results will help propel Alphabet to become a winning stock over the next five years.
Taiwan Semiconductor is a massive beneficiary of the AI arms race. It's a chip foundry that produces chips for many of the top AI companies. As a result, it's making a ton of money from increased data center capital expenditures. Management expects its strong growth to continue for many years, as it gave a projection that AI-related revenue would increase at a 45% compound annual growth rate (CAGR) over the next five years (starting in 2025) and overall revenue would increase at nearly a 20% CAGR.
Considering that the overall market usually rises at around a 10% annual pace, this would indicate market-crushing growth. However, Taiwan Semiconductor's stock is valued at about the same level as the broader market, trading at 25 times forward earnings.