The stock market is awash with big gains, driven by the artificial intelligence (AI) boom. From hardware to software, or from infrastructure to support services, many companies playing a role in the AI supply chain have grown tremendously over the past two years.
But many of the biggest winners of this AI rush seem too expensive these days. Overenthusiastic investors have given the chip designer a boost Nvidia (NASDAQ: NVDA) to lofty heights, ignoring a rising tide of rivals. Builder of AI systems Super microcomputer (NASDAQ: SMCI) is one of the biggest winners despite a financial scandal.
At the same time, the rising digital tide did not lift all available boats. Despite the massive market rally, a few stocks with deep AI ties haven’t soared to record highs. These companies may have some problems to solve, but some still seem like misunderstood winners to me.
On that note, here’s a top AI stock that looks deeply undervalued in December 2024. This underrated tech giant belongs on your AI radar.
I agree with that Intel (NASDAQ: INTC) has seen better days.
Sales have fallen in recent years despite rising demand for AI chips, and the former Chipzilla is no longer the world’s largest semiconductor company by revenue. The stock isn’t even among the top ten chip names by market cap, and Intel has lost its coveted prize Dow Jones Industrial Average (DJINDICES: ^DJI) seat to Nvidia.
The situation came to a head earlier this month when CEO Pat Gelsinger left the position. The interim leadership team led by CFO David Zinsner and MJ Holthaus, head of the client computing group, have already identified some big changes. They appear interested in spinning off the recently created Intel Foundry business as a standalone company, and Intel could raise money by selling some of its stakes in machine vision experts. Mobile (NASDAQ: MBLY).
So the Intel you see today is very different from the chip giant that dominated the industry for decades, and the company will continue to change in the years to come.
Meanwhile, Intel stock is priced for absolute disaster. Shares trade at just 1.6 times sales and 0.9 times book value. In other words, the average Intel investor believes that he would benefit if Intel stopped running its business, sold all of its assets, and found a tax-free method to return that money directly to shareholders give.
But I think that’s a miscalculation.
Intel has invested about $25 billion a year in its infrastructure over the past three years, compared to a long-term average of about $15 billion. Most of the spending increase went to building or upgrading chip manufacturing facilities around the world, including several locations in America. Intel has built a world-class chip foundry business, giving American companies a serious alternative to Asian industry giants Taiwanese semiconductor (NYSE: TSM) And Samsung (OTC: SSNL.F). This is happening at a crucial time, as politicians in Beijing and Washington clash with the increasingly important chip industry caught in the middle. Oh, and demand for more chip manufacturing capacity continues to rise thanks to the aforementioned AI bonanza.
