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The three most undervalued semiconductor stocks to buy in May 2024

With the explosive, growing interest in all things technology, including artificial intelligence, machine learning and self-driving cars, the demand for semiconductors will only increase. All this should boost the upside potential of undervalued semiconductor stocks.

According to Precedence Research, the global semiconductor market could be worth approximately $1.137 trillion by 2033. That’s up from $544.78 billion in 2023. Additionally, global sales rose 16.3% year over year to $46.2 billion in February 2023. That was an increase of 1.3% year over year, according to the Semiconductor Industry Association.

For an idea of ​​how explosive the industry could become, watch Nvidia (NASDAQ:NVDA).

Since the beginning of 2023, the tech giant rose from a low of around $150 to a high of $950. From here, Nvidia could go even further with rising demand for its AI chips.

Additionally, according to PYMNTS.com, “Demand for Nvidia’s chips has soared, with the company predicting 233% revenue growth in the first quarter, exceeding market expectations. This growth is fueled by robust demand for graphics processing units from data centers undergoing AI upgrades.”

While Nvidia is certainly one of the best ways to trade the semiconductor boom, investors should also look at other explosive but currently undervalued semiconductor stocks.

Advanced micro devices (AMD)

In this photo illustration, the AMD logo is displayed on the screen of a smartphone.

Source: Pamela Marciano / Shutterstock.com

After going from around $90 to a high of $227, Advanced micro devices (NASDAQ:AMD) recently dropped to a low of $150.60 in earnings. It is not only undervalued here, but technically oversold on the RSI, MACD and Williams’ %R. From the last traded price of $150.60, I’d like to see it retest $180 per share, especially if earnings negativity is priced in.

Analysts at KeyBanc may have lowered their price target on AMD to $230, but they reiterated an overweight rating on the stock. The company also believes that AMD is still on track to capitalize on strong demand for graphics processing units (GPUs) driven by artificial intelligence.

Morgan Stanley also says it would be unwise to ignore AMD here, citing “significant enthusiasm for its core business,” expecting substantial progress in client, server and field programmable gate arrays (ICs that customers can reconfigure) over the next year and a half. As noted by TipRanks. Morgan Stanley has an overweight rating on the stock with a $176 price target.

Taiwanese semiconductor (TSM)

TSMC Taiwan Semiconductor Manufacturing Company (TSM) logo displayed on the mobile phone screen

Source: Piotr Swat / Shutterstock.com

We can also look at undervalued semiconductor stocks such as Taiwanese semiconductor (NYSE:TSM). After falling from around $145 to a low of $125.78, TSM is just starting to turn higher. From the last traded price of $141.56, I would like to see it retest $157.76 initially.

First, as I noted in early April, “Demand for AI-optimized chips is outpacing supply, which puts Taiwan Semiconductor Manufacturing in an admirable position and could justify further valuation gains.”

Second, analysts at Needham recently said that TSM’s decline appears to be overdone after solid first-quarter numbers.

Not long ago, during the company’s first quarter earnings call, TSM’s CEO CC Wei warned of overall semiconductor market growth in 2024. TSM lowered its forecast that the overall semiconductor market in 2024, excluding memory, would grow by about 10% year-over-year will rise, while foundry industry growth is now expected to be in the mid- to high-teens percent range, noting that both come from the market. steep inventory correction and/or 2023 base,” according to Seeking Alpha.

At the same time, Wei noted that TSM expects 2024 to be healthy for the company. The company still expects second-quarter revenue in the range of $19.6 billion to $20.4 billion, ahead of expectations for $19.08 billion. TSM also sees profit margins falling within a range of 51% and 53%.

ON Semiconductor (ON)

a machine produces semiconductor chips in a factory environment.  AI semiconductor stocks

Source: Shutterstock

We can also benefit from the recent weakness of rebounding stocks ON Semiconductor (NASDAQ:ON). After falling from around $78 to a low of $60, ON is just starting to turn higher. The last one traded at $70.37, I would like to see it retested at $78 soon.

The profits haven’t been too bad. In the first quarter, the company posted earnings per share of $1.08, up three cents. Revenue of $1.86 billion – down 5.1% year over year – was surpassed by $10 million. In addition, weakness from the recent price target reductions of Deutsche Bank, B. Riley, Truist and TD Cowen are all priced in as well.

Needham recently reiterated a buy rating on ON stock with a $90 price target.

We must also remember that “the The automotive industry is shifting to so-called SiC modules (silicon carbide). ON Semiconductor is a major producer of these modules,” said Alex Siriois, an Investorplace employee.

Furthermore, as also noted by Cadence Design Systems, “demand for silicon carbide semiconductor devices will increase in the coming years as most of the automotive industry shifts to electric vehicle production.”

At the date of publication, Ian Cooper had (neither directly nor indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publishing Guidelines.

InvestorPlace.com contributor Ian Cooper has been analyzing stocks and options for web-based advice since 1999.