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An introduction

A week ago, I provided a list of AI stocks that have an extremely high forward P/E ratio in an article entitled "These 10 AI Stocks Are Grossly Overvalued" which was extremely well received. Today's article provides a list of the 10 AI stocks I follow (see here) with the lowest forward P/E ratios and why. 

What Is the Forward Price-to-Earnings Ratio?

The forward P/E ratio is a key valuation metric reflecting how much investors are willing to pay today for expected earnings over the next 12 months. A high ratio indicates optimism about future growth, while, conversely, a low forward P/E ratio might signal a hidden gem or a red flag depending on the story behind the numbers:

•  if the company has strong fundamentals and the market hasn’t caught on yet, a low forward P/E could mean the stock is trading below its true value and, if a low forward P/E ratio is paired with rising earnings forecasts suggests the company might be poised for growth, making it attractive to value investors.
• Conversely, the market may be pricing in risks like slowing growth, regulatory challenges, or competitive threats.

A low forward P/E isn’t inherently good or bad—it’s a clue. The real insight comes from asking why it’s low. Is it a diamond in the rough, or a value trap?
 

The 10 AI Stocks With the Lowest Forward P/E Ratios - and Why

To that end please find below the 10 AI stocks with the lowest forward P/E ratios (which changes as the stock price changes) and the reason why, in ascending order, whether or not each company is considered a potential bargain and consensus analyst ratings/average price targets.

1. Qualcomm (QCOM): current forward P/E ratio of 13.2
   • Why Its Low: 
     • Investors are concerned about smartphone demand softness despite solid forward guidance and analysts suggest the market is undervaluing QCOM's position in AI chips, automotive tech, and mobile stabilization
   • Analyst Rating/Price Target: 
     • The 20 analysts that cover QCOM stock have a consensus rating of "Buy" and an average price target which forecasts a 14.8% increase in the stock price over the next year. 
   • Valuation Forecast: 
     • Qualcomm’s current forward P/E is well below its 3-, 5-, and 10-year averages which hovered around 20, making today’s valuation look like a potential bargain
2. Micron Technology (MU): 14.5
   • Why Its Low: 
     • ​​​​​​​Micron’s earnings have been volatile, and investors may be discounting future earnings due to uncertainty in demand recovery and pricing power.
     • Micron is heavily exposed to DRAM and NAND flash memory and, when demand dips, like during PC or smartphone slowdowns, pricing collapses, dragging down earnings expectations and investor sentiment.
   • Analyst Rating/Price Target: 
     • ​​​​​​​The 28 analysts that cover Micron Technology stock have a consensus rating of "Strong Buy" and an average price target which forecasts a 30.5% increase in the stock price over the next year. 
   • Valuation Forecast: 
     • ​​​​​​​If memory demand rebounds, especially with AI, data centers, and automotive growth, Micron could see significant earnings expansion, making its low forward P/E a value opportunity.
3. United Microelectronics (UMC): 15.0
   • Why Its Low: 
     • ​​​​​​​UMC’s focus on older process nodes means it’s business is less growth-oriented, which affects investor sentiment and compresses valuation.
   • Analyst Rating/Price Target: 
     • ​​​​​​​The 1 analyst that covers UMC has a "Sell" rating and a stock price target which predicts a 9.7% increase from its current stock price.
   • Valuation Forecast:
     • ​​​​​​​While UMC has posted solid profits, its stock price hasn’t surged in tandem and this disconnect has resulted in a lower forward P/E, which could signal undervaluation if earnings hold up.
4. Applied Materials (AMAT): 17.3
   • Why Its Low: 
     • Investors may be cautious about capital expenditure slowdowns from chipmakers like AMAT, and this caution can suppress valuation multiples even when earnings are strong.
   • Analyst Rating/Price Target: 
     • ​​​​​​​The 28 analysts that cover Applied Materials stock have a consensus rating of "Buy" and an average price target which forecasts a 20.4% increase in the stock price over the next year.
   • Valuation Forecast: 
     • ​​​​​​​AMAT has delivered robust earnings, but its stock price hasn’t surged in proportion and this has resulted in a lower forward P/E, suggesting the market may be undervaluing its future growth potential.
5. Check Point Software Technology (CHKP): 19.2
   • Why Its Low: 
     • ​​​​​​​Check Point is known for consistent profitability and strong margins, but its revenue growth is modest compared to its high-flying peers and, hence, the lower valuation.
     • The company tends to be cautious with acquisitions and innovation, focusing on stability over aggressive expansion, and this conservative approach doesn’t excite the market, keeping the forward P/E ratio subdued.
   • Analyst Rating/Price Target: 
     • ​​​​​​​The 23 analysts that cover Check Point Software stock have a consensus rating of "Buy" and an average price target which forecasts a 22.1% increase in the stock price over the next year.
   • Valuation Forecast: Check Point has a healthy earnings per share (EPS) but its stock price hasn’t surged in tandem and this disconnect has resulted in a lower forward P/E, which could signal undervaluation if growth picks up.
6. NXP Semiconductors (NXPI): 19.9
   • Why Its Low: 
     • ​​​​​​​NXPI has posted solid earnings per share (EPS) but its growth trajectory is steady, not explosive as it focuses on automotive, industrial, and IoT chips which are more about reliability than rapid expansion and investors tend to reward high-growth companies with higher P/E multiples.
     • Investors may be cautious about inventory corrections or slowing demand in consumer electronics which can weigh on sentiment.
   • Analyst Rating/Price Target: 
     • ​​​​​​​The 20 analysts that cover NXP Semiconductors stock have a consensus rating of "Strong Buy" and an average price target which forecasts a 5.3% increase in the stock price over the next year.
   • Valuation Forecast: 
     • ​​​​​​​NXPI’s current forward P/E is below its 3-year and 5-year averages, which suggests the stock may be undervalued relative to its own history, especially if earnings remain stable.
7. Alphabet Inc. (GOOGL): 21.0
   • Why Its Low: 
     • ​​​​​​​Alphabet continues to post robust earnings but its stock price hasn’t surged in proportion, keeping the forward P/E ratio subdued.
     • Investors are cautious given that GOOGL's advertising revenue has been facing pressure from economic uncertainty.
     • Alphabet is pouring billions into AI development, and these expenses have reduced earnings, keeping the forward P/E ratio low despite future potential.
     • Alphabet faces stiff competition in cloud computing and this has added uncertainty to its growth trajectory, which has weighed on valuation multiples.
   • Analyst Rating/Price Target: 
     • The 40 analysts that cover Alphabet stock have a consensus rating of "Buy" and an average price target of which forecasts a 2.5% increase in the stock price over the next year.
   • Valuation Forecast:
     • ​​​​​​​Alphabet’s low forward P/E might well be a signal that the stock is undervalued relative to its earnings power.
8. GlobalFoundries (GFS): 21.3
   • Why Its Low: 
     • ​​​​​​​GFS has posted negative trailing earnings and, while forward earnings are expected to improve, the market remains cautious due to this lack of profitability as GlobalFoundries focuses on mature nodes which limits growth potential and investor enthusiasm.
   • Analyst Rating/Price Target: 
     • ​​​​​​​The 12 analysts that cover GlobalFoundries stock have a consensus rating of "Buy" and an average price target which forecasts a 32.2% increase in the stock price over the next year.
   • Valuation Forecast:
9. Salesforce (CRM): 22.0
   • Why Its Low: 
     • Salesforce used to post double-digit revenue growth, but that pace has cooled to single digits in the most recent quarter which reflects cautious enterprise spending in favor of smaller, lower-risk investments and that has seen Salesforce’s EPS growth decline to an expected average 12.9% CAGR over the next five years which is down sharply from the 27.8% CAGR it posted in the previous five years. This shift has dampened investor enthusiasm and pulled down valuation multiples.
   • Analyst Rating/Price Target: 
     • ​​​​​​​The 34 analysts that cover Salesforce stock have a consensus rating of "Buy" and an average price target which forecasts a 36.3% increase in the stock price over the next year.
   • Valuation Forecast:
     • ​​​​​​​Salesforce’s low forward P/E suggests potential undervaluation if the company can reignite its growth engine.
10. Taiwan Manufacturing (TSM): 23.9
    • Why Its Low:
      • Given U.S./China tensions TSMC’s location in Taiwan has introduced geopolitical uncertainty and, as such, investors may by applying a risk discount to TSM's stock even though its fundamentals are strong.
    • Analyst Rating/Price Target: 
      • ​​​​​​​The 3 analysts that cover TSMC stock have a consensus rating of "Strong Buy" and an average price target which forecasts a 8.9% increase in the stock price over the next year.
    • Valuation Forecast: 
      • ​​​​​​​TSMC’s relatively low forward P/E might be a value-rich opportunity hiding in plain sight for long-term investors.

For the record, the forward P/E ratio for the Nasdaq Composite Index is 28.0.

Addendum

 Going forward I will track the performance of each of the above stocks on a weekly basis and MTD in a new AI Stocks With the Lowest Fwd P/E Ratios Portfolio.