The Motley Foolยท2025-07-27 09:45Core Viewpoint - The article highlights three undervalued stocks in the artificial intelligence (AI) sector: Taiwan Semiconductor, Adobe, and Alphabet, suggesting they present good investment opportunities despite market concerns [1]. Group 1: Company Performance and Positioning - Taiwan Semiconductor is the primary chip fabricator for leading tech companies like Nvidia and Apple, positioning it favorably in the AI race [3]. - The company reported a remarkable 44% revenue increase in the second quarter, exceeding expectations, and is projected to grow at nearly a 20% compound annual growth rate over the next five years [4]. - Adobe is recognized for its industry-standard graphics design tools, but faces concerns about being displaced by generative AI technologies [5]. - Despite these concerns, Adobe has invested in generative AI and developed its Firefly product, allowing it to remain competitive and relevant in the graphic design industry [6][9]. - Alphabet, the parent company of Google, faces similar fears regarding generative AI replacing Google Search; however, its entrenched user base and recent AI search features may help maintain its market share [10][11]. Group 2: Valuation and Market Comparison - Alphabet's stock trades at a significant discount compared to the broader market, with the S&P 500 trading at 23.8 times forward earnings, while Alphabet offers a reasonable price for its growth potential [12][14]. - Adobe is also considered cheap, trading at 18 times forward earnings, indicating potential for upside [14]. - Taiwan Semiconductor trades at 25 times forward earnings, which is a slight premium to the market, but its expected growth rate justifies this valuation, making it a bargain buy [16][17].