Geoffrey Seiler, The Motley Fool
7 min read
In This Article:
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Looking for low PEG ratios can be one way to find stocks that are currently on sale.
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AMD, Broadcom, and Nvidia are all cheap chip stocks given their projected growth.
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Salesforce and Adobe are two SaaS companies riding the AI wave that have fallen into the bargain bin.
In a fast-growing segment like artificial intelligence (AI), it's not always easy to spot bargains; however, they can be found. One of the best ways to find bargains in a hot sector is to look beyond stocks' price-to-earnings (P/E) ratios and instead look at their price/earnings-to-growth (PEG) ratios, as this metric takes into consideration their earnings growth.
Stocks with PEGs under 1 are generally considered undervalued, and based on this metric, five of the best values in the AI space are Advanced Micro Devices (NASDAQ: AMD), Broadcom (NASDAQ: AVGO), Salesforce (NYSE: CRM), Nvidia (NASDAQ: NVDA), and Adobe (NASDAQ: ADBE).
Let's look at why these bargain AI stocks could be great buys.
With a forward PEG of only 0.2 based on its projected 2026 growth, AMD is one of the cheapest stocks in the AI space -- if it can live up to its growth expectations. The company has already been seeing solid growth, with its overall revenue climbing by 36% last quarter to $7.44 billion, while its data center segment revenue surged 57% to $3.7 billion.
The growth is being led by the company's strong positioning within server central processing units (CPUs) and solid growth from its graphics processing units (GPUs). The former acts as the brain for computers, while the latter provides the processing power. While the market for CPUs is not nearly as robust as the one for GPUs in the data center space, it is still a nice, growing market, and AMD has been taking share.
However, the company's biggest opportunity will come when the AI market shifts from training more toward inference, which is expected to eventually be the much larger market. Inference is less technically demanding than training AI models, and things such as latency, power consumption, and cost come much more into play. This should allow AMD to take some market share in the GPU space, which would fuel a lot of growth moving forward.
Broadcom is another cheap chip stock with a big opportunity in front of it. The company is seeing solid growth, with revenue jumping 25% last quarter to $14.9 billion, led by a 70% surge in its networking revenue. However, it is its foray into custom AI chips that has the potential to really drive growth higher.
