The 3 Most Undervalued AI Stocks to Buy in September 2023

Unlock stock picks and a broker-level newsfeed that powers Wall Street.

Josh Enomoto

Sat, Sep 16, 2023, 12:51 PM 4 min read

Although artificial intelligence has garnered tremendous interest for good reason, investors may want to focus more of their attention on undervalued AI stocks to buy. Don’t get me wrong – some of the hottest trades right now continue to impress, most noticeably Nvidia (NASDAQ:NVDA). However, these ideas are simply too hot to touch for most investors.

For those that are concerned about holding the bag should market sentiment suddenly go sour, the undervalued AI stocks make more sense. To be sure, no endeavor in the capital market operates without risk. Still, with the enterprises enjoying the machine learning spotlight carrying wildly aggressive multiples, it’s time to consider a discounted route. If that’s you, below are the less-appreciated but still power AI stocks to buy.

Qualcomm (QCOM)

Qualcomm (QCOM) logo on an outdoor sign

Source: Akshdeep Kaur Raked / Shutterstock.com

While Qualcomm (NASDAQ:QCOM) hasn’t enjoyed the best outing this year – only gaining a bit more than 6% since the January opener – it’s worth putting on your radar for undervalued AI stocks to buy. No, it’s not just because of its poor chart performance. For one thing, Qualcomm unexpectedly got a boost when Apple (NASDAQ:AAPL) signed a new supply deal with the tech specialist.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Of course, it’s not clear how long such an arrangement will last. After all, Apple has long indicated that it wants to build its own modem chips for its flagship iPhone. Apparently, though, that’s easier said than done. Plus, even if Apple eventually separates from third-party suppliers, Qualcomm commands acumen that’s difficult to ignore. Plus, QCOM is one of the most attractively valued AI stocks. Right now, it trades at 12.41x forward earnings. In contrast, the sector median is 20.96x. Finally, analysts peg QCOM as a consensus moderate buy with a $135.82 price target, implying over 19% upside.

Teradyne (TER)

Source: Michael Vi / Shutterstock.com

An automatic test equipment designer and manufacturer, Teradyne (NASDAQ:TER) features many high-profile customers, including Qualcomm. While an important player in the broader tech ecosystem, Teradyne isn’t exactly a pure-play example of AI stocks to buy. However, it’s part of the semiconductor industry supply chain, which has benefitted from a post-pandemic demand surge.

Moving forward, Teradyne should play an increasingly important role in digital intelligence. As chip capacities increase, demand for various testing services and electronic equipment should rise. In addition, Teradyne sells robotic systems to customers in the manufacturing sector, according to Reuters.

On a financial basis, TER benefits from a stout balance sheet and excellent profit margins. Even with its superior bottom-line performance, TER trades at 16.44x forward earnings. Again, this rates much lower than the chip sector’s median 20.96x. Lastly, analysts peg TER as a moderate buy with a $119.15 price target, implying nearly 22% growth.

Baidu (BIDU)

Laptop computer displaying logo of Baidu (BIDU), a Chinese multinational technology company specializing in Internet-related services and products

Source: monticello / Shutterstock.com

A Chinese multinational technology firm, Baidu (NASDAQ:BIDU) is an interesting case because of the ongoing U.S.-China chip war. With tensions rising between the two biggest economies in the world, Baidu inherently presents risks. At the same time, acquiring AI stocks that trade at over 100x trailing earnings is another form of risk that many investors simply don’t want to take.

Fortunately, Baidu offers some enticing exposure for the adventurous. For example, another Reuters report noted that more than 70 large AI language models with over 1 billion parameters have been release in China. What’s more, Baidu is one of several Chinese companies that have launched AI chatbots recently following regulatory approval for mass market releases.

What makes BIDU stand out is its value proposition. Right now, the market prices shares at a forward earnings multiple of 13.88x. This compares favorably to the interactive media industry’s median value of 18.04x.

In closing, analysts peg BIDU as a consensus strong buy with a $185.07 price target, implying 35% upside potential.

On the date of publication, Josh Enomoto did not have (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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.