The artificial intelligence industry is booming, which makes it an attractive sector to invest in. But AI hype has pushed up stock prices for several tech companies and inflated their valuations in many cases.
Fortunately, investors looking for AI bargains can still find some. One of these is Taiwan Semiconductor Manufacturing (NYSE: TSM), popularly known as TSMC, which Nvidia employs to construct its AI chips. Two others are Super Micro Computer(NASDAQ: SMCI), commonly called Supermicro, and Google parent Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG).
Looking at the price-to-earnings (P/E) ratio of these three AI stocks compared to Nvidia reveals that they are trading at much lower valuations at the time of writing.
These three companies saw downward pressure on their share prices because of various headwinds. A big one is the global economic uncertainty introduced by President Donald Trump's tariff policies. But the secular trend of AI promises to boost each company's business over the long run. Beyond their relatively cheap valuations, here's why each is a buy.
Image source: Getty Images.
1. Taiwan Semiconductor Manufacturing
TSMC is a compelling investment because of its leadership in manufacturing chips used to process AI tasks. Its expertise in efficiently producing 3-nanometer (nm) chips in large quantities is leading to rapid sales growth. This tech contributed 22% of the company's $25.5 billion in first-quarter revenue, up from just 9% in the prior year.
Although it's seeing success with its 3nm technology, TSMC is already looking to the next step. The manufacturer is working on its next-generation tech, 2nm, which it expects to enter production later this year.
TSMC's technological achievements helped it grow Q1 sales by a strong 35% year over year to $25.5 billion. Moreover, its Q1 gross margin rose to 58.8%, up from 53.1% in the previous year, demonstrating efficiency in managing costs.
Although the dynamic situation with tariffs introduces possible volatility into TSMC's business in the near term, the company forecast Q2 revenue to reach between $28.4 billion to $29.2 billion. That would be an outstanding increase of at least 37% from the prior year's $20.8 billion.
Also, TSMC was awarded $6.6 billion in federal government funding as part of the CHIPS Act to build semiconductor fabrication facilities in the United States. So the company is in a great position to see long-term business growth.
2. Super Micro Computer
Supermicro sells servers and data storage solutions to businesses building AI systems. The company was beset by a series of short-term issues in 2024 that sent its stock tumbling, including the resignation of its auditor, but it has since sorted out the issues.
In its fiscal 2025 Q3 (ended March 31), Supermicro's revenue reached $4.6 billion, a 19% increase year over year. Despite the growth, the result failed to meet the company's forecast for at least $5 billion in sales as customer purchasing delays pushed "some sales into Q4 and later," according to CFO David Weigand.
Like TSMC, the current macroeconomic climate induced by tariffs affects Supermicro in the short term, but AI's growth can buoy the company over time. After all, the AI market is forecast to expand from 2024's $184 billion to a whopping $826 billion by 2030.
In fact, Supermicro estimates it will close out fiscal 2025 with sales between $21.8 billion and $22.6 billion. That would be a strong increase from the prior year's $14.9 billion.
The company already exceeded the previous year's total revenue through the first three quarters of fiscal 2025 with sales of $16.2 billion. That means its revenue goal for the year is within reach.
3. Alphabet
Google parent Alphabet is investing heavily in AI. The company spent $52.5 billion in capital expenditures last year to build cutting-edge AI systems. Today, every product the company owns with at least half a billion users has incorporated Alphabet's AI.
The addition of AI to products such as Google's search engine and its cloud computing business, Google Cloud, contributed to both seeing double-digit year-over-year sales growth in Q1. Google hit $50.7 billion, and its cloud division earned $12.3 billion. This performance helped Alphabet reach $90.2 billion in total Q1 revenue, up from $80.5 billion in 2024.
Another example of Alphabet's AI success is Waymo, its self-driving car business. Waymo's service uses AI to make autonomous driving decisions, and now supplies more than 250,000 passenger rides per week, a fivefold increase from last year.
Alphabet's stock is down not only because of current macroeconomic conditions; Google also lost two key antitrust cases over the past year. But the conglomerate has the opportunity to appeal the decisions, so these short-term challenges do not necessarily translate into an impact on its business.
Good time to scoop up shares
Although TSMC, Supermicro, and Alphabet face(d) headwinds that pushed share prices down, the situation has created a buying opportunity for investors with a long-term mindset. The AI market's ongoing expansion and the success these companies have already demonstrated with AI position these three businesses to grow in the coming years. Their current compelling stock valuations make now a good time to scoop up shares.
Should you invest $1,000 in Alphabet right now?
Before you buy stock in Alphabet, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you’d have $640,662!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you’d have $814,127!*
Now, it’s worth notingStock Advisor’s total average return is963% — a market-crushing outperformance compared to168%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Robert Izquierdo has positions in Alphabet, Nvidia, Super Micro Computer, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
