Investors often seek opportunities to profit by finding deals during a market sell-off. Currently, numerous stocks are trading at unusually low valuations, even after a recent uptick on Wednesday. Among these, Taiwan Semiconductor Manufacturing (TSM) and Alphabet (GOOG) stand out as particularly attractive options. These stocks are considered so undervalued that market participants are urged not to overlook these opportunities.
Taiwan Semiconductor Manufacturing initially appears to be a surprising choice, given the 32% tariff rate once imposed by President Donald Trump, which could seem disadvantageous since most of its chip production takes place in Taiwan. This tariff has since been reduced to 10% across all countries. Importantly, semiconductors themselves are exempt from these tariffs, presenting a significant but often overlooked detail that makes TSM a compelling investment at present.
Additionally, Taiwan Semiconductor is making efforts to establish new production facilities in the United States. The company recently announced a $100 billion investment in U.S. chip manufacturing, which includes three fabrication plants, two packaging centers, and one research and development facility. This move aligns with the U.S. administration’s goal to bring more manufacturing stateside.
Concerns remain that a decline in consumer spending could impact TSMC, as some of its chips are used in consumer products like smartphones and vehicles. However, this is expected to be offset by significant growth in artificial intelligence chip demand. TSMC management forecasts AI-related revenue will grow at a compound annual growth rate (CAGR) of 45% over the next five years, while overall revenue is projected to grow at a 20% CAGR. More insights on the impact of tariffs on TSMC’s demand are anticipated during their Q1 conference call on April 17. Currently, following a sell-off, TSMC’s stock trades at less than 18 times forward earnings, indicating a potentially undervalued price for a company of its stature.
Alphabet, part of the “Magnificent Seven” tech stocks, has often been criticized as expensive, but unlike its peers, it has not traditionally commanded a premium valuation. With the rise of generative AI, some investors worry about challenges to its advertising-centric business model that revolves around the Google ecosystem. Despite this, the act of “Googling” remains deeply rooted in user behavior worldwide, and Alphabet is capitalizing on this by incorporating AI-powered summaries into Google search results.
Nevertheless, in the event of an economic recession triggered by tariffs, Alphabet’s advertising business could suffer, as advertising budgets are often the first to be trimmed during economic downturns. Historically, this has posed challenges for Alphabet, though the company’s stock is currently not far from its 15-year low in terms of trailing price-to-earnings (P/E) ratio. This drop in stock price has occurred without concrete evidence of a recession, but rather based on the fear of one.
Given this context, today presents an opportune moment to consider purchasing Alphabet stock, as it is rarely this affordable. Investors will gain further insights into Alphabet’s outlook on tariffs in early May. The Motley Fool mentions that Suzanne Frey, an executive at Alphabet, serves on its board of directors, and it discloses positions in both Alphabet and Taiwan Semiconductor Manufacturing.
