Nvidia remains the market share leader in AI chips.
Alphabet continues to defy the skeptics when it comes to search.
TSMC is well positioned to benefit from increased AI infrastructure spending.
The recent volatility in the stock market has seen many technology companies fall into value territory. For investors with a long view, this can be a great time to start accumulating shares in market-leading companies that are trading at attractive valuations.
Let's look at three leading tech companies that fit this bill.
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1. Nvidia
Despite a bounce from its lows, Nvidia(NASDAQ: NVDA) is still very attractively valued, trading at a forward price-to-earnings ratio (P/E) of under 25 times this year's analyst estimates and a 0.5 price/earnings-to-growth (PEG) ratio. Stocks with PEG ratios below 1 are typically viewed as undervalued, so by this metric, Nvidia's shares remain on the clearance rack.
Admittedly, there have been some investor concerns about the stock recently. The impact of a chip export ban to China and tariffs on the company has been one concern, while the bigger one has been worries that data center spending is about to slow.
However, commentary from the sector continues to point to strong data center growth ahead. At a recent conference, Amazon said that it only sees numbers going up, while on their earnings calls, both data center supplier Vertiv and cloud computing company Alphabet echoed the strong demand and capacity constraints in the market they were seeing.
That's great news for a company that has a more than 80% share in the graphic processing unit (GPU) market, which is the main chip used to power AI workloads. Nvidia has created a wide moat with its CUDA software platform, which allows its chips to be easily programmed. It also has a collection of AI-specific libraries and tools that help improve its chips' performance running AI workloads.
As long as data center spending continues to rise, Nvidia's stock should be a long-term winner.
Image source: Getty Images
2. Alphabet
Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG) is arguably one of the cheapest mega-cap tech stocks out there, given the collection of market-leading and emerging businesses under its umbrella. The company is the largest digital advertiser in the world, owning the world's leading search engine, Google, and the most-watched video platform, YouTube. It also owns the world's third-largest cloud computing company and the fast-growing robotaxi business, Waymo.
In addition, Alphabet was one of the first companies to develop its own custom AI chips, while last year, its Willow chip for quantum computing helped solve a major obstacle in the field. Its newest Gemini AI model, meanwhile, has been one of the best-performing on independent AI benchmarking leaderboards.
While there has been some worry about AI displacing search, there have been no signs of this impacting Alphabet's search business, with revenue rising 10% in the first quarter. Meanwhile, its AI Overviews have been improving and seeing a strong reception, with it attracting 1.5 billion AI Overview users a month. The company noted that it continues to monetize its AI Overviews at a similar rate to search. Given its much higher costs, AI is likely to become complementary to search and take on a different monetization model than the ad-dominated search model. As such, free search will likely continue to play a big role in the future for both users and advertisers.
With a forward P/E of 17 times, Alphabet stock is too cheap. Google Cloud and Waymo will continue to be strong growth drivers, while Google search and YouTube should continue to be nice, steady-growing businesses.
3. Taiwan Semiconductor
Another leading tech stock in the bargain bin is Taiwan SemiconductorManufacturing(NYSE: TSM), or TSMC for short, which trades at a forward P/E of 17.7 times and a PEG just above 0.5.
The company is the leading semiconductor contract manufacturer in the world, where it produces advanced chips for customers like Nvidia. While rival foundries have struggled, TSMC has managed to become an invaluable partner to leading chip designers through its technological expertise and scale. This has allowed the company to benefit not only from increasing chip demand but also to gain strong pricing power.
TSCM's strong growth could be seen in its Q1 numbers, with revenue climbing 35% to $25.5 billion, while its gross margin expanded 190 basis points year over year, and its earnings per American depositary receipt (ADR) soared 54%.
As long as the AI infrastructure buildout continues, TSMC remains in a strong position. The company works closely with its top customers to increase capacity to meet their growing demands. It's building manufacturing facilities around the globe, including in the U.S., and continues to be poised to be the leader in the space.
With a combination of increasing demand for its services and strong pricing power, TSMC is set to be a long-term winner.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
