The AI gold rush has turned several chip stocks into globally important firms. Of course, none has become more important than Nvidia (NASDAQ:NVDA). The company’s AI accelerator GPUs are in high demand. Share prices have surged to astronomical levels, leading some to believe they are overvalued. While that may or may not be the case, we are looking for overlooked chip stocks today.
Some firms are connected to the AI gold rush, while others possess different catalysts. Regardless, each represents an undervalued opportunity as chip stocks continue to strengthen.
The tube sector is notoriously cyclical. It ebbs and flows. Thus, investors who catch cyclicality at the correct times can make out handsomely. These undervalued chip stocks represent a way to capture those gains potentially.
STMicroelectronics (STM)
STMicroelectronics (NYSE:STM) is a strong stock choice in the auto chip application sector. The automotive semiconductor industry has not fared exceptionally well of late.
That’s part of the reason STMicroelectronics remains undervalued. Combine that with the fact that the company doesn’t have much connection to generative AI and a contrarian opportunity merges.
The company provides processors and microcontrollers primarily applicable to the automotive sector. The opportunity there broadly relates to the continued adoption of electric vehicles. EVs require roughly twice the number of chips as do traditional cars. That suggests STMicroelectronics will continue to have a strong opportunity to satisfy future demand.
The stock’s P/E ratio is just one of many metrics that suggest it is undervalued and continues to present an opportunity to investors. Shares are cheaper than 92% of semiconductor competitors based on that metric. An overview of STMicroelectronics’ fundamentals suggests it is a well-run company.
Indie Semiconductor (INDI)
Indie Semiconductor (NASDAQ:INDI) is another automotive chip that appears to be undervalued. Vehicle autonomy and Advanced Driver Assistance Systems (ADAS) represent strong growth. The ADAS market will grow at an annual rate of 12% between this year and 2030.
Morgan Stanley also recognized Indie Semiconductor as the fastest-growing semiconductor company in the world over the past two years. Revenues surged past $70 million during the fourth quarter. That represented 112% growth on a year-over-year basis. 2023 revenues also reached triple-digit growth, increasing by 101%.
The company is projecting that Q1 revenues will grow by nearly 40%. Indie Semiconductor isn’t undervalued based on traditional metrics but rather because its growth remains underappreciated currently.
To be completely clear, Indie Semiconductor is a riskier investment than other chip makers. The opportunity here will materialize once rate cuts are enacted. Those cuts have been notoriously difficult to predict with any accuracy. However, that’s what investors should look for.
Micron Technology (MU)
Based on traditional metrics, Micron Technology (NASDAQ:MU) doesn’t stand out as an undervalued chip stock. However, if recent history has taught us anything, metrics don’t matter in the chip sector.
And, of course, reference stocks like Nvidia and AMD (NASDAQ:AMD). Pricing for chips with a strong connection to the AI opportunity is notoriously fickle. The fundamentals suggest that a share should be priced for much less. If it has a strong connection to AI, it doesn’t matter.
That’s precisely the story with Micron Technology.
It all comes down to the opportunity to have high bandwidth memory. In that regard, Micron Technology has been selected as a critical partner to Nvidia. High bandwidth memory can increase the power of artificial intelligence chips.
The company also recently reported strong results for fiscal quarter Q2 2024. Thus, Micron Technology appears undervalued based on its connection to and opportunity within high bandwidth memory. It can become a vital supplier to Nvidia and other leading AI chip firms.
— Alex Sirois
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Source: Investor Place