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Since the beginning of 2023 the artificial intelligence sector has been on a tear. munKNEE.com's 10 AI Micro/Small Cap Stocks Index is up 115.4% YTD, its Magnificent Seven AI-themed Mega Stocks Index is up 96.8% YTD and its 10 AI Quantum Computing Stocks Index is up 73.4% YTD. One might think that any potential investor contemplating investing in the sector is too late to capitalize on this surge but that is not necessarily the case. A search of the AI sector has identified 15 companies whose stocks remain undervalued according to their EV/EBITDA ratio valuations having gone up "only" 58.3% YTD. This article identifies those 15 stocks and other information to assist a prospective investor in assessing these stocks as possible investment opportunities.

The EV/EBITDA ratio (Enterprise Value to Earnings Before Interest, Tax, Depreciation, and Amortization ratio) is one of the best metrics used by value investors to evaluate a company and to that end I have analyzed 101 AI stocks and found just 15 stocks with EV/EBITDA ratios of less than 13 i.e. fairly valued, if not undervalued, compared to their peers.

The EV-to-EBITDA ratio is preferred to other ratios in that it accounts for the value of all financing the company has received from both equity stakes and debt. It is calculated by dividing EV by EBITDA and the resultant number indicates whether a company is overvalued or undervalued; if the ratio is high, it means the company is overvalued, while a low ratio indicates it’s undervalued. 

• EV stands for Enterprise Value and is the combined market capitalization (the market value of a public company’s total outstanding shares) and net debt (debt minus the cash) of a company.
• EBITDA provides a raw and clear value of a company's profitability as it removes extraneous factors such as Earnings Before Interest, Tax, Depreciation, and Amortization allowing investors to compare profitability between companies and analyze the companies.

Below are the 15 stocks presented in descending order as to the extent (%) to which each differs from the median EV/EBITDA ratio of the sector they operate in along with:

• a description of each company's operation,
• the 12-month price targets offered by analysts covering each company and
• the extent to which all 15 companies have performed YTD.

1. StoneCo (STNE): - 77.4% from the median EV/EBITDA ratio of the Financials; Transaction & Payment Processing Services sector in which it operates
   • Operation: a Brazilian fintech company providing financial technology solutions to enable merchants to conduct electronic commerce seamlessly across in-store, online, and mobile channels.
   • Average Analyst 12-month Forecast: +59.96% from today's closing stock price
2. Applied Digital (APLD): -69.8% from the median EV/EBITDA ratio of the Information Technology; Application Software sector in which it operates
   • Operation: designs, develops, and operates datacenters providing digital infrastructure solutions to the high-performance computing industry as well as artificial intelligence cloud services
   • Average Analyst 12-month Forecast:  +160.26% from today's closing stock price
3. United Microelectronics (UMC): -64.8% from the median EV/EBITDA ratio of the Information Technology; Semiconductors sector in which it operates
   • Sector: operates as a semiconductor wafer foundry providing circuit design, mask tooling, wafer fabrication, and assembly and testing services
   • Average Analyst 12-month Forecast: Not Available
4. ASE Technology (ASX): -55.2% from the median EV/EBITDA ratio of the Information Technology; Semiconductors sector in which it operates
   • Operation:  provides semiconductors packaging and testing, and electronic manufacturing services 
   • Average Analyst 12-month Forecast: -17.16% from today's closing stock price
5. ST Microelectronics (STM): -55.9% from the median EV/EBITDA ratio of the Information Technology; Semiconductors sector in which it operates
   • Operation: designs, develops, manufactures, and sells semiconductor products
   • Average Analyst 12-month Forecast: +35.91% from today's closing stock price
6. Dell Technologies (DELL): -47.6% from the median EV/EBITDA ratio of the Information Technology; Technology Hardware, Storage and Peripherals sector in which it operates
   • Operation: designs, develops, manufactures, markets, sells, and supports various comprehensive and integrated solutions, products, and services  as well as cybersecurity technology-driven security solutions
   • Average Analyst 12-month Forecast: -3.28% from today's closing stock price
7. Lantronix (LTRX): -46.0% from the median EV/EBITDA ratio of the  Information Technology; Communications Equipment sector in which it operates
   • Operation: provides solutions for video surveillance, infotainment systems, and intelligent substations infrastructure and turnkey solutions for the Internet of Things and Remote Environment Management
   • Average Analyst 12-month Forecast: +111.65% from today's closing stock price
8. Infineon Technologies (IFNNY): -44.6% from the median EV/EBITDA ratio of the  Information Technology; Semiconductors sector in which it operates
   • Operation:  designs, develops, manufactures, and markets semiconductors and related system solutions
   • Average Analyst 12-month Forecast: Not Available
9. Skyworks (SWKS): -41.5% from the median EV/EBITDA ratio of the Information Technology; Semiconductors sector in which it operates
   • Operation: designs, develops, manufactures, and markets proprietary semiconductor products
   • Average Analyst 12-month Forecast: +25.32% from today's closing stock price
10. Alithya (ALYA): -40.0% from the median EV/EBITDA ratio of the Information Technology; IT Consulting and Other Services sector it operates in
    • Operation:  provides strategy and digital technology services including strategic consulting, digital transformation, organizational performance, and enterprise architecture services and application services
    • Average Analyst 12-month Forecast: +103.61% from today's closing stock price
11. Cisco Systems (CSCO): - 30.3% from the median EV/EBITDA ratio of the Information Technology; Communications Equipment sector it operates in
    • Operation: designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry
    • Average Analyst 12-month Forecast: +14.0% from today's closing stock price
12. Taiwan Semiconductor (TSM): -29.3% from the median EV/EBITDA ratio of the Information Technology; Semiconductors sector it operates in
    • Operation: packages, tests, and sells integrated circuits and other semiconductor devices and provides complementary metal oxide silicon wafer fabrication processes to manufacture logic, mixed-signal, radio frequency, and embedded memory semiconductors
    • Average Analyst 12-month Forecast: +24.2% from today's closing stock price
13. Qualcomm (QCOM): -28.3% from the median EV/EBITDA ratio of the Information Technology; Semiconductors sector that it operates in
    • Operation: engages in the development and commercialization of foundational technologies for the wireless industry and invests in early-stage companies in various industries, including 5G, artificial intelligence, automotive, consumer, enterprise, cloud, IoT, and extended reality
    • Average Analyst 12-month Forecast: +23.62% from today's closing stock price
14. NXP Semiconductor (NXPI): -20.7% from the median EV/EBITDA ratio of the Information Technology; Semiconductors sector that it operates in
    • Operation: offers various semiconductor products such as microcontrollers; application processors, communication processors and wireless connectivity solutions
    • Average Analyst 12-month Forecast: +15.0% from today's closing stock price
15. IBM (IBM): -18.3% from the median EV/EBITDA ratio of the Information Technology; IT Consulting and Other Services sector that it operates in
    • Operation: offers hybrid cloud platform and software solutions; software for business automation, AIOps and management, integration, and application servers; data and artificial intelligence solutions; and security software and services for threat, data, and identity.
    • Average Analyst 12-month Forecast: +7.33% from today's closing stock price

The above 15 stocks in munKNEE's Undervalued AI Stocks Index are up 58.3% YTD and are expected to advance by a further 18.6% over the next 12 months according to the analysts' forecasts. 

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