Finding bargain artificial intelligence (AI) stock isn't easy. There are many overvalued and overhyped AI stocks out there, and it's easy to get caught up in some of those investments. However, there are still plenty that I would consider undervalued, despite solid long-term prospects.
Three that fall into this classification for me are Alphabet (GOOG 0.52%) (GOOGL 0.47%), Taiwan Semiconductor (TSM -0.85%), and The Trade Desk (TTD 2.66%). All of these look like excellent buys now, and I'd expect each of their stocks to skyrocket by 2030, partly due to undervaluation.
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Alphabet
Alphabet is the parent company of Google, among many other brands. However, its Google Search engine brings in the majority of the revenue, but it's also under scrutiny. Many investors are worried about generative AI models replacing Google Search, which would be a massive headwind for Alphabet.
As a result, the market has given Alphabet a cheap stock price.
GOOGL PE Ratio (Forward) data by YCharts
Although it has had a strong recovery in recent months, Alphabet is still cheaper than the S&P 500 (^GSPC -0.29%), which trades for 23.7 times forward earnings.
However, I think this discount is unwarranted. Google Search has already integrated AI search overviews as a way to make a hybrid AI and traditional experience. Google Search also delivered strong revenue growth in Q2, rising 12% year over year.
I think Google will remain on top despite rising competition, and long-term results will help propel Alphabet to become a winning stock over the next five years.
Taiwan Semiconductor
Taiwan Semiconductor is a massive beneficiary of the AI arms race. It's a chip foundry that produces chips for many of the top AI companies. As a result, it's making a ton of money from increased data center capital expenditures. Management expects its strong growth to continue for many years, as it gave a projection that AI-related revenue would increase at a 45% compound annual growth rate (CAGR) over the next five years (starting in 2025) and overall revenue would increase at nearly a 20% CAGR.
Considering that the overall market usually rises at around a 10% annual pace, this would indicate market-crushing growth. However, Taiwan Semiconductor's stock is valued at about the same level as the broader market, trading at 25 times forward earnings.
While that's technically more expensive than the market, it's a small premium to pay for Taiwan Semi's projected growth. As a result, it looks like an excellent stock to buy now.
The Trade Desk
The Trade Desk operates a software platform that acts as an ad marketplace. It operates on the demand side of the platform, which is tailored to companies that want to advertise their products and services.
It has an AI-based product, Kokai, that it's migrating customers to, although there have been a few snags along the way. This has caused growth to slow a bit and the near-term outlook to slow. Alongside the effects of tariffs on some companies, The Trade Desk isn't firing on all cylinders, and the market punished it for that, dropping the stock around 40% from its recent highs following earnings.
However, there's still a massive long-term investment opportunity here, and investors shouldn't overlook this no-brainer. The digital advertising market continues to grow, and The Trade Desk is a major way to play this space outside of companies that control specific websites. The Trade Desk can deliver explosive returns over the next five years, and buying shares on sale today is a genius move.
