The advent of generative artificial intelligence (AI) took the world by storm in 2023. Semiconductor companies have been ever busy since then. There is a plethora of complex components — hardware and software — that go into making the silicon chips that power large language models (LLMs). Nvidia (NASDAQ:NVDA) is arguably the largest beneficiary of the AI craze. Over the past 12 months, the acclaimed GPU maker’s share price has nearly quadrupled in value, making it one of the most lucrative semiconductor trades in a while.
Equities investors looking to invest in semiconductor stocks should perhaps look beyond Nvidia. However, that doesn’t necessarily imply they would be avoiding exposure to AI. Without further ado, below are the three most undervalued semiconductor stocks to buy in June 2024.
Taiwan Semiconductor Manufacturing Company (TSM)
The Taiwan Semiconductor Manufacturing Company (NYSE:TSM) is perhaps the most consequential chipmaker on the globe. In particular, TSM is a contract manufacturer that builds Nvidia’s advanced AI chips as well as the silicon for Apple (NASDAQ:AAPL) and Advanced Micro Devices (NASDAQ:AMD). The contract chip manufacturer has enjoyed sizable earnings growth over the past couple of quarters due to a recovering consumer electronics market and robust demand for AI chips.
The Q1 earnings report for fiscal year 2024 saw revenue rise 16.5% to NTD 592.6 billion ($18.6 billion), while net income increased 8.8% to NTD 225.5 billion ($7.2 billion). The firm accounted for about 61% of global chip foundry sales in Q4 of 2023, and this solid position in the market will make TSMC poised to capture the AI demand in the market.
Currently, the company can produce chips at a 3-nanometer process, and the business is aiming to be able to bring 2-nanometer production to the broader market by 2024.
Trading at 26.5x forward earnings, the stock appears undervalued, and given its role in manufacturing AI chips, TSMC could make a good long-term bet on the space.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is in the business of designing and selling microchips to power data processing across vast networks. Optical technology has proliferated with the rise of data centers and cloud networks. For example, optical interconnects have begun to replace traditional copper wires to facilitate data interchange between servers. The rise of artificial intelligence models has, in turn, increased demand for fast optical interconnects and network chips that help process data.
Outside of network chips, Broadcom also designs custom AI chips for clients. At an event in March, the tech firm unveiled a sophisticated XPU designed for a consumer “consumer AI company.” That part of Broadcom’s business has Google (NASDAQ:GOOG, NASDAQ:GOOGL) as a major client and also commands a high gross margin.
Broadcom expects to sell about $10 billion worth of AI chips in 2024. While there will definitely be some competition from Nvidia, Broadcom’s comparatively lower valuation makes it a compelling choice for an AI chip bet.
ACM Research (ACMR)
The final entry on this list is ACM Research (NASDAQ:ACMR). This semiconductor firm provides the sophisticated equipment semiconductor foundries use to manufacture chips. In essence, the point of ACM’s business is to enhance the yields for integrated chips during the manufacturing process.
ACM Research’s Q1 earnings report for fiscal year 2024 saw the firm increase revenue by 105% on a year-over-year basis to $152.2 million. That reflected higher sales of various core products, including single wafer and semi-critical cleaning equipment. Shipments, which include deliveries for revenue recognized during the quarter and “first tool systems” that may lead to sales in future quarters, skyrocketed 175% from last year to $245 million.
ACMR is seeing major growth and success as its mainland China customers have increased spending on mature, advanced node technology. The semiconductor firm trades at just 14.3x forward earnings, and its growth opportunity in China and other parts of East Asia makes it undervalued.
On the date of publication, Tyrik Torres 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.