The stock market is awash in big gains driven by the artificial intelligence (AI) boom. From hardware to software, or infrastructure to supporting services, many companies playing a part in the AI supply chain have skyrocketed in the last two years.
But many of the biggest winners in this AI rush look too expensive these days. Overly enthusiastic investors have boosted chip designer Nvidia (NASDAQ: NVDA) to lofty heights, ignoring a rising tide of rivals. AI systems builder Super Micro Computer (NASDAQ: SMCI) is a leading gainer despite a financial scandal.
At the same time, the rising digital tide didn't lift every available boat. Despite the massive market surge, a few stocks with deep AI ties have not soared to record highs. These companies may have some issues to work out, but some of them still strike me as misunderstood winners.
On that note, here's one top-shelf AI stock that looks deeply undervalued in December 2024. This underrated tech giant belongs on your AI radar.
Sales have been sliding in recent years despite the surging 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 10 largest chip names by market cap, and Intel has lost its coveted Dow Jones Industrial Average (DJINDICES: ^DJI) seat to Nvidia.
The situation came to a head earlier this month as CEO Pat Gelsinger left the post. The interim leadership team under CFO David Zinsner and client computing group chief MJ Holthaus have already signaled some major changes. They seem interested in spinning off the recently created Intel Foundry business as a stand-alone company, and Intel might raise cash by selling some of its holdings in machine-vision expert Mobileye (NASDAQ: MBLY).
So the Intel you see today is very different from the chip giant that dominated the industry for several decades, and the company will continue to change over the next few years.
Why Intel's stock looks undervalued
Meanwhile, Intel's stock is priced for absolute disaster. Shares are trading at just 1.6 times sales and 0.9 time book value. In other words, your average Intel investor feels that they would benefit if Intel stopped running its business, sold all its assets, and found a tax-free method for returning that cash directly to shareholders.
But I think that's a miscalculation.
Intel has been investing roughly $25 billion a year in its infrastructure over the last three years, up from a long-term average of approximately $15 billion. Most of the expenditure boost went into building or upgrading chip-making facilities around the world, including several sites in America. Intel has been building a world-class chip foundry business, giving U.S. companies a serious alternative to Asian sector giants Taiwan Semiconductor (NYSE: TSM) and Samsung (OTC: SSNL.F). This is happening at a pivotal time, as politicians in Beijing and Washington are clashing with the increasingly crucial chip industry caught in the middle. Oh, and the demand for more chip-making capacity keeps rising thanks to the aforementioned AI bonanza.