The Motley Foolยท2025-11-13 09:04Core Viewpoint - The article discusses the current state of AI stocks, highlighting that while many have inflated valuations, there are a few undervalued companies with strong fundamentals that present good investment opportunities. Group 1: AI Stock Valuations - Many AI stocks, such as Nvidia and Palantir Technologies, have seen their valuations become excessive, with Nvidia trading at over 50 times earnings and Palantir at a staggering $420 billion despite low revenue generation [2][3] - Investors may be hesitant to invest in AI stocks due to these high valuations, which do not reflect the companies' current financial performance [2] Group 2: Undervalued AI Stocks - ASML is highlighted as a key player in the tech sector, dominating the market for extreme ultraviolet photolithography machines, with profit margins around 29% and a price-to-earnings ratio of 36, lower than the sector average [4][5] - Taiwan Semiconductor Manufacturing (TSMC) is noted for its leadership in chip production, reporting a 41% year-over-year sales increase to $33.1 billion, with profit margins around 46% and trading at 32 times trailing earnings [8][9][11] - Alphabet is considered undervalued, trading at less than 28 times trailing earnings, with significant assets like YouTube and Google Search, and a promising AI chatbot, Gemini, which enhances its business prospects [12][13][14] Group 3: Market Performance and Future Outlook - ASML's stock has risen nearly 54% in the past year, indicating strong market performance, with expectations for further growth due to its critical role in chip development for AI [7] - TSMC's market cap is around $1.2 trillion, but it is suggested that it deserves a higher valuation given its competitive advantages [11] - Alphabet's market cap stands at $3.5 trillion, and it is argued that it should be valued even higher due to its diverse business model and AI capabilities [14][15]