Artificial intelligence (AI) is developing well beyond mere hype right now, as evidenced by the debut of consumer electronics giant Apple (AAPL) in the space. With widespread applications across key industries like automobile, healthcare, finance, and much more, AI is here to stay. According to this report, the global AI market is set to reach $1.34 trillion by 2030 from $214.6 billion in 2024, suggesting a CAGR of 35.7% through the end of this decade.
Of course, the breathtaking rally in AI stocks over the last two years has resulted in concerns about overvaluation. Considering this, investment research firm Morningstar identified some of the AI stocks that still look undervalued, based on their analysis. Here are five of them.
AI Stock #1: STMicroelectronics
Founded in 1987 through the merger of two government-owned companies in Italy and France, STMicroelectronics (STM) is a global Integrated Device Manufacturer (IDM). The company designs, develops, manufactures and sells a wide range of semiconductor products used in various applications. Its market cap currently stands at $40.84 billion.
STM stock is down 12% on a YTD basis and offers a dividend yield of 0.47%.
The stock is trading at a forward price/earnings ratio of 20.9, below the sector median of 24.17.
Overall, analysts have a consensus rating of “Moderate Buy” for STM stock, with a mean target price of $47. This denotes an upside potential of about 6.6% from current levels. Out of 13 analysts covering the stock, 8 have a “Strong Buy” rating, 4 have a “Hold” rating, and 1 has a “Strong Sell” rating.
AI Stock #2: Infineon Technologies
Founded in 1999 as a spin-off from Siemens AG's semiconductor business and based out of Germany, Infineon Tech (IFNNY) is a major semiconductor manufacturer, focusing on specific areas. These include Connected Secure Systems, Power & Sensor Systems and Automotive Solutions. The company currently commands a market cap of $54.2 billion.
IFNNY stock is down 3.3% on a YTD basis and offers a dividend yield of 0.63%.
The stock's forward p/e is 20.82, below the sector median and its own 5-year historical average.
Analysts have deemed the stock a “Strong Buy” overall, with a mean target price of $46. This indicates an upside potential of about 13.5% from current levels. Out of 11 analysts covering the stock, 9 have a “Strong Buy” rating and 2 have a “Hold” rating.
AI Stock #3: Sensata Technologies
Originally founded in 1916, the current iteration of Sensata Technologies (ST) came into being in 2016. The company is a leading supplier of sensors and sensor-based solutions used in various industries like automotive, medical, and industrial, among others. Its market cap currently stands at $5.9 billion.
ST stock is up 4.5% on a YTD basis and offers a dividend yield of 1.22%.
The company's stock is trading at a forward p/e of 10.63, which is a steep 43% discount to the industrial sector median.
Overall, analysts have a consensus rating of “Moderate Buy” for ST stock, with a mean target price of $45.45, which indicates an upside potential of roughly 15.8% from current levels. Out of 11 analysts covering the stock, 4 have a “Strong Buy” rating, 6 have a “Hold” rating, and 1 has a “Strong Sell” rating.
AI Stock #4: Nvidia
The focus of many “AI bubble” worries itself, Nvidia (NVDA) has had a stellar run higher on AI-fueled growth. Founded in 1993 and based out of California, Nvidia is a leading designer of Graphics Processing Units (GPUs) and a major player in the field of Accelerated Computing. Their products cater to various markets including data centers, gaming and automotive among others. Its market stands at a whopping $3.07 trillion.
NVDA stock is up a staggering 159% on a YTD basis and offers a modest dividend yield of 0.03%.
With a PEG ratio of 1.46, NVDA bulls note that the stock still looks reasonably priced for its expected growth.
Notably, analysts have deemed the stock a “Strong Buy” overall, with the Street-high target price of $150 suggesting upside potential of about 16.5% from current levels. Out of 40 analysts covering the stock, 35 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 3 have a “Hold” rating.
AI Stock #5: Adobe
We conclude our list with Adobe (ADBE) which was founded in 1982. Adobe is a multinational software company specializing in creativity and multimedia software. Their core products include Creative Suite, Document Cloud and Digital Marketing Solutions. The company currently commands a market cap of $206 billion.
ADBE stock is down 22.8% on a YTD basis ahead of tonight's earnings report.
ADBE is currently priced at 25.53x forward earnings, a discount to its historical average of 35.90x.
Overall, analysts have an average rating of “Moderate Buy” for Adobe stock, with a mean target price of $619.76. This indicates an upside potential of about 33.6% from current levels. Out of 32 analysts covering the stock, 22 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 7 have a “Hold” rating, and 2 have a “Strong Sell” rating.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.