Technology is one of the fastest-growing sectors in the stock market. With implications like generative AI and quantum computing having implications in sectors ranging from retail to healthcare, it is no wonder that investors are always looking for the next big disruptive tech company to invest in. Of course, despite the explosive growth and popularity of AI, it can be difficult to pinpoint a good investment due to this sector’s recent surge in valuation. With so many companies hitting all-time highs and beating sector median P/E ratio valuations, many investors have become hesitant to enter an already overvalued market. This has led to this list of undervalued tech stocks to buy.
Furthermore, with so many complex parts in the tech industry such as learning how semiconductors work, understanding cloud software, to a range of other sectors, it can be difficult for even the most intelligent investors to find promising companies amidst walls of complex terminology and information. As such, in this article, we aim to examine this industry more deeply and highlight three undervalued tech stocks with great potential going forward.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is a company that works on internet services and technology innovations to make people’s lives easier and more connected. The stock is up over 40% in the past year with an average 1-year Yahoo Finance analyst price target of $160.46, far above the current share price of around $144.93.
The company is planning on expanding GFiber, its business related to Wi-Fi and internet connectivity. As such, it is expanding out to investors and has recently signed deals to bring its services to 25 additional cities and therefore grow its customer base. This makes it one of those undervalued tech stocks to buy.
With a forward PEG ratio of 1.29x compared to the sector median of 1.65x, Alphabet stands relatively undervalued compared to its competitors when we consider its earnings growth potential over the next year. Analysts expect EPS to grow at over 16% for next year which showcases the company’s growth prospects. As this well-known tech giant recovers from its dropoff early last year, investors should all consider scooping a few Alphabet shares before this stock’s valuation loses its attractiveness.
Meta (META)
Meta (NASDAQ:META) is a company that focuses on social media and technology, offering platforms where people can communicate online. The stock is up over 140% in the past year with an average 1-year Yahoo Finance analyst price target of $475.96, far above the current share price of around $450.
The company recently had an earnings report on February 1 of this year and reported an EPS of $5.33, which beat expectations by $0.36. With a revenue of $40.11 billion, it also beat revenue expectations by over $940 million. This highlights how even with concerns over Zuckerberg’s MMA fighting, the company is still more than thriving.
Taking a look at its valuation, Meta has a PEG ratio of 0.44x compared to the sector median of 0.86x. Thus, Meta is relatively undervalued compared to its competitors when we consider its earnings growth potential. With EPS expected to grow at over 34% next year, the company has explosive potential to continue growing with the AI boom into 2024.
Taiwan Semiconductor (TSM)
Taiwan Semiconductor (NYSE:TSM) is the largest semiconductor manufacturer and plays a vital role throughout the tech industry. It is the backbone of the semiconductor manufacturing industry, making chips for some of the largest companies such as Apple (NASDAQ:AAPL). Currently, it has a market cap of $472 billion. Yahoo Finance analysts project a one-year range of $100-$133, with an average price of $120.
The semiconductor industry is valued at around $570 billion and is projected to grow at a CAGR of 12.2% until 2029. One of the main ways TSMC intends to capitalize on this growth is by expanding its foundries throughout the globe. Its plans to develop sites in both Arizona and Germany marks its first ventures outside Asia.
TSMC currently has a P/E ratio of around 23.1x, mostly aligning with industry standards. While this valuation may not be the most undervalued, given TSMC’s continued average earnings growth of around 23.6% and its rapid stock increase driven by demand from AI, this valuation puts Taiwan Semiconductor as an exception tech pick for this month.
On the date of publication, Ian Hartana and Vayun Chugh did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.