5 Undervalued Semiconductor Stocks You Can Buy Now in July (2026) — Transcript

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1. 0:00Semiconductor stocks are soaring in
2. 0:022026, which is leading a lot of
3. 0:04investors asking, are we in a
4. 0:06semiconductor stock bubble? Now, while
5. 0:09it might be true that some semiconductor
6. 0:11stocks are overvalued and are in bubble
7. 0:14territory, there are others, like the
8. 0:17five I'm going to highlight in this
9. 0:18video, that are still undervalued and
10. 0:21attractive for long-term investors. So,
11. 0:23let me highlight those five undervalued
12. 0:25semiconductor stocks investors can buy
13. 0:27today. I want to thank The Motley Fool
14. 0:29for sponsoring this video. Visit
15. 0:32fool.com/parkev
16. 0:34for the 10 best stocks to buy now. The
17. 0:36first undervalued semiconductor stock
18. 0:38I'm going to highlight might surprise
19. 0:40you. And that's Micron Technology. The
20. 0:42reason I suggested might surprise you is
21. 0:44because this stock is already up by
22. 0:46hundreds of percentage points, depending
23. 0:48on the time period you're considering.
24. 0:51Still, even though the stock price is up
25. 0:53by such a significant amount, those
26. 0:56increases are justified. Justified by
27. 0:59what? Earnings growth, cash flow growth,
28. 1:01sales growth. These companies are
29. 1:03actually delivering on those
30. 1:05fundamentals. The price increases are
31. 1:07not just driven by hype, enthusiasm, or
32. 1:10momentum.
33. 1:12Micron is selling at a market price of
34. 1:14$925
35. 1:16per share.
36. 1:17But I calculated a fair value of this
37. 1:19business at $1,503.
38. 1:23Memory has become a critical component
39. 1:26that's going inside data centers, and
40. 1:28the prices of these components are
41. 1:30soaring.
42. 1:31Furthermore, supply is more difficult to
43. 1:34increase, leaving the situation in a
44. 1:36supply-demand imbalance in favor of
45. 1:40companies like Micron for the
46. 1:41foreseeable future.
47. 1:43Micron is signing longer-term strategic
48. 1:46customer agreements, extending the cycle
49. 1:48and visibility, which is reducing the
50. 1:50risk for the company in multiple ways.
51. 1:53It makes it easier for the company to
52. 1:55research and develop because
53. 1:57they can better understand what their
54. 1:59customers are looking for, not just for
55. 2:01this year or next, but several years
56. 2:04into the future.
57. 2:05It also de-risks the company's capital
58. 2:08expenditure plans. It now knows, for
59. 2:10better or worse, what its sales are
60. 2:13going to look like for several years
61. 2:15into the future. And so, it can plan
62. 2:17accordingly to make sure it has the
63. 2:19right amount of supply to meet those
64. 2:21needs. The next undervalued
65. 2:23semiconductor stock I'm going to
66. 2:24highlight is Taiwan Semiconductor
67. 2:27Manufacturing Company, which is selling
68. 2:29at $434
69. 2:31per share. I calculated a fair value of
70. 2:34$611.
71. 2:37TSMC is the manufacturing partner for
72. 2:39some of the world's largest tech
73. 2:41companies, including Apple and Nvidia.
74. 2:45Those companies outsource their
75. 2:47manufacturing needs to Taiwan
76. 2:49Semiconductor, and those companies are
77. 2:51seeing booming demand and orders and
78. 2:54backlogs are increasing for TSMC.
79. 2:57The company's profit margins are better
80. 2:59than they've ever been and better than
81. 3:01what the management team was
82. 3:03forecasting.
83. 3:04At this point, the management was
84. 3:06expecting their profit margins to
85. 3:08decline closer to 50% because of their
86. 3:12geographic diversification.
87. 3:14Remember, Taiwan Semiconductor
88. 3:16Manufacturing Company is under pressure
89. 3:18from its customers to diversify outside
90. 3:21of Taiwan because of the conflicts and
91. 3:24the tension between China and Taiwan.
92. 3:27Customers want to diversify away from
93. 3:29that risk, and so TSMC,
94. 3:31to assuage its customers, is expanding
95. 3:34outside. And it's also helped by
96. 3:36incentives by governments in Japan and
97. 3:39in the United States, which is offering
98. 3:41the company billions of dollars to build
99. 3:43manufacturing facilities in those
100. 3:45countries.
101. 3:46But the management team said that this
102. 3:48is not without cost, that those
103. 3:50manufacturing facilities outside of
104. 3:52Taiwan are not as efficient and will
105. 3:55lead to lower profit margins. But that
106. 3:57hasn't happened yet and it's surprising
107. 4:00a lot of investors and investors are
108. 4:02asking the management team, "Hey, do you
109. 4:04still think the profit margins are going
110. 4:06to come down?" And the management team
111. 4:08said, "Yes, don't get too excited. Right
112. 4:10now, it's just because of booming demand
113. 4:13that we're utilizing our capacity near
114. 4:16full levels and that's leading to better
115. 4:19than expected profit margins, but yes,
116. 4:21we do still expect our profit margins to
117. 4:24decline slightly over time as more of
118. 4:26our production comes from more of our
119. 4:29overseas manufacturing plants."
120. 4:31Still, despite incorporating those risks
121. 4:34into my valuation model,
122. 4:36TSMC looks significantly undervalued at
123. 4:40under $450 per share. The next
124. 4:43undervalued semiconductor stock I'm
125. 4:45going to highlight is Broadcom, which in
126. 4:47recent days, you may have read the news,
127. 4:50they signed a big partnership with Apple
128. 4:52for $30 billion over 6 years in helping
129. 4:56Apple manufacture more of their
130. 4:58components inside the United States.
131. 5:01Broadcom helps companies like Alphabet
132. 5:04and OpenAI and others custom-built their
133. 5:07chips that are going into these data
134. 5:09centers. They're called
135. 5:10application-specific
136. 5:12integrated circuits. Some companies like
137. 5:15those that I mentioned want to diversify
138. 5:17away from the off-the-shelf products
139. 5:20that are being offered by branded
140. 5:21suppliers like Nvidia and AMD and they
141. 5:25want to build their own proprietary
142. 5:26chips. Since they're spending so much in
143. 5:29these data centers, they want to have
144. 5:31some of their own proprietary product
145. 5:34that's going into these data centers and
146. 5:36lessen their reliance on the branded
147. 5:38providers. It also gives them
148. 5:40negotiating power against those
149. 5:42providers if they should ask for too
150. 5:44high of a price premium, then these
151. 5:46companies can just say, "You know what?
152. 5:48We'll build more of our own proprietary
153. 5:50chips. We might be behind. These might
154. 5:53not be the latest and greatest, but at
155. 5:55least we're getting it at a lower price
156. 5:57and it will allow us to iterate and
157. 5:59improve year after year and eventually
158. 6:02close that gap if we continue investing
159. 6:05aggressively."
160. 6:06Broadcom is selling at less than $400 at
161. 6:09$391
162. 6:11and I calculated a fair value for this
163. 6:13business at $507.
164. 6:16And I've talked about Nvidia already in
165. 6:18this video, but I also recommend this
166. 6:21one and rate this one as an undervalued
167. 6:24semiconductor stock trading at less than
168. 6:26$200 right now, $199 to be precise. I
169. 6:30calculated a fair value at over $313
170. 6:34per share.
171. 6:35Nvidia is the dominant player in the
172. 6:37data center market. Its GPUs are the
173. 6:40latest and greatest technology. It's at
174. 6:42least one step ahead of the competition
175. 6:45and its profits and cash flows are
176. 6:47soaring. The company is the best growth
177. 6:50company in the Magnificent Seven
178. 6:53providing the highest growth rate, the
179. 6:54highest profit expansion, the highest
180. 6:57profit margins. I could go on and on.
181. 6:59Still, investors are not as enthusiastic
182. 7:03about Nvidia. They're concerned that its
183. 7:05growth and its profit margin is
184. 7:07unsustainable and it'll eventually fall
185. 7:09off a cliff.
186. 7:11I don't think that's going to be the
187. 7:12case. I think growth rates will plateau
188. 7:15into the data center, that's to be sure,
189. 7:18but a couple of years into the future,
190. 7:20there could be other catalysts that
191. 7:22could take the helm and lead the company
192. 7:25into the next stage of growth. Those
193. 7:27catalysts could be from driverless car
194. 7:29technology, it could be from health
195. 7:31care, it could be from robotics.
196. 7:34Regardless, the company's
197. 7:37stock price has not increased despite
198. 7:40the fact that its profits, earnings, and
199. 7:42cash flow have increased substantially.
200. 7:45So, it's put the company in a position
201. 7:48where it's trading at an undervalued
202. 7:50price. And last but not least, Qualcomm,
203. 7:53which had a strong foothold in the
204. 7:55smartphone industry, but in recent years
205. 7:58has expanded beyond that very
206. 8:00successfully, I might add. So, kudos to
207. 8:02the management team for Qualcomm
208. 8:04expanding outside its core competency.
209. 8:07It's had great success expanding into
210. 8:09the automotive automotive industry, more
211. 8:11recently than its expansion in the
212. 8:13automotive industry has been its
213. 8:15expansion into the computer industry,
214. 8:18where it's finding great success in
215. 8:20laptops at at the premium price points.
216. 8:24And then it's also recently announced
217. 8:26expanding into the data center market
218. 8:29providing its own chips that are going
219. 8:31into that market. It's already signed a
220. 8:33big deal with Meta Platforms to provide
221. 8:35the company with chips going into their
222. 8:38data centers. And given Qualcomm's
223. 8:40Qualcomm's recent success in expanding
224. 8:41into the automotive and computer
225. 8:44industry, investors can be reasonably
226. 8:47confident that Qualcomm will find
227. 8:49relative success expanding into the data
228. 8:51center market, especially because that
229. 8:53market is booming and is so large and is
230. 8:56so supply constrained, they will welcome
231. 8:58another provider into the industry.
232. 9:01Qualcomm is selling at $184 per share,
233. 9:05and I calculated a fair value of $284.
234. 9:09So, despite the booming semiconductor
235. 9:12prices, booming semiconductor stocks,
236. 9:15there are still undervalued
237. 9:16semiconductor stocks to find. And what I
238. 9:19find most encouraging about this list is
239. 9:22the fact that their prices have
240. 9:24increased because of profit growth,
241. 9:27because of cash flow growth, not because
242. 9:29of multiple expansion. I can share with
243. 9:32you the multiples for these companies.
244. 9:34It's a different way to look at
245. 9:36valuation, and what I'm sharing with you
246. 9:38here is the forward price to earnings
247. 9:39ratio for the five undervalued
248. 9:41semiconductor stocks I highlighted here.
249. 9:44And the most expensive is Broadcom at a
250. 9:46forward price to earnings of 33.
251. 9:49Taiwan Semiconductor is selling at a
252. 9:51forward price to earnings of 27.
253. 9:54Nvidia is trading at a surprising
254. 9:56forward price to earnings of just 22,
255. 9:59which is near the lowest point Nvidia
256. 10:00stock has traded for in several years.
257. 10:03And then you have Qualcomm trading at a
258. 10:05forward PE of 17, and Micron trading at
259. 10:08a forward PE of 12 and 3/4.
260. 10:11So, most of the growth in the share
261. 10:13prices for these companies has come from
262. 10:16the denominator, from earnings growth,
263. 10:18not an expansion in the multiple, which
264. 10:21is a lot more risky, which is a lot more
265. 10:23dangerous, which is a lot more of a sign
266. 10:25of a bubble forming, rather than a sign
267. 10:28of fundamental improvement in the
268. 10:30business that justifies a more premium
269. 10:32valuation.
270. 10:33So, these are the reasons why I'm still
271. 10:36confident in the semiconductor industry,
272. 10:39still confident in a lot of these
273. 10:40semiconductor stocks. In fact, out of
274. 10:43this list, I already own two of them. I
275. 10:45own Nvidia stock and Broadcom stock in
276. 10:48my portfolio already, and I'm interested
277. 10:51in adding
278. 10:52the one, two, or all three of the other
279. 10:55three stocks I mentioned in this list
280. 10:57here.