The AI boom has made finding high-growth stocks at fair value challenging, especially in the tech and chip sectors. Despite Nvidia’s (NASDAQ:NVDA) recent drop from $134 to $112 per share, stocks related to the AI trend remain pricey, to say the least. That said, some growth opportunities are now fairly priced after sector pullbacks, offering investors a chance to buy growth at reasonable rates.
Many investors may miss such growth stocks, especially now that recession fears are looming large again and the tech sector is struggling. The prolonged wait for Federal Reserve rate cuts has worsened the situation, with the potential for further market pain if the Fed delays too long. To outperform others, investors should look for companies with above-average earnings growth.
Here are two such companies that could have superior growth over the next five years.
Meta Platforms (META)
As one of the biggest players in the tech and AI space, Meta Platforms (NASDAQ:META) stock has seen an impressive 41% surge year-to-date, outpacing the S&P 500’s 16% surge. Currently at around $515 per share, this is a stock that’s still undervalued relative to the consensus estimate. The consensus estimate from analysts is at around $527. Despite an 80% gain since early 2021, Meta’s returns have been inconsistent, with 23% in 2021, -64% in 2022, and 194% in 2023, underperforming the S&P 500 in 2021 and 2022.
Uncertainty remains if Meta will underperform again or see strong growth over the next 12 months. This sort of boom-and-bust stock tends to do well in bull market environments but can really lag behind in a recessionary environment (the stock went public following the recent Great Financial Crisis). We’ll have to see how macro headwinds or tailwinds form. But all things being equal, this company remains a dominant player in the social media space. This is due to the strong AI tailwinds being priced in here.
Despite that, Meta’s growth remains driven by advertising. In the company’s second quarter, Meta reported $39.1 billion in revenue, with consistent growth seen throughout the first half of the year. Meta’s guidance also anticipates rapid spending, especially in 2025, due to AI development and infrastructure. While investors may be wary of the company’s valuation and spending path, it’s also true that this spending is crucial for enhancing Meta’s AI capabilities, which are essential for competitive ad offerings. Ads are more personalized and could drive ad prices more in the long term, benefitting investors in META stock over the long term.
Taiwan Semiconductor (TSM)
Due to an AI surge in sales, Taiwan Semiconductor (NASDAQ:TSMC) recently reported strong July revenue, coming in at $7.93 billion. The company noted a 44.7% revenue growth rate over the past year. It’s worth noting that this chip maker surpassed analyst expectations in Q2, reporting impressive demand for its 3nm and 4nm tech.
The company also has strong ties with its peers in the AI sector, particularly Nvidia. TMC supplies chips for Apple (NASDAQ:AAPL), leading to an overall 61% share increase in 2024. TSMC looks forward to more growth in Q3, expecting revenue to reach $23.2 billion due to strong AI and smartphone demand.
TSMC offers a 1.5% dividend yield, boosted by the recent tech downturn. With rapidly growing earnings in 2024, the company’s dividend remains secure. Additionally, the company’s in-demand chips are likely to lead to continued outperformance for TSM stock, with analysts continuing to adjust their growth forecasts. In my view, the stock remains relatively undervalued, making it a decent time to add to positions. With strong July results and continued demand, I think the company’s upcoming Q3 report could be a winner.
Super Micro Computer (SMCI)
Super Micro Computer (NASDAQ:SMCI) remains a top AI beneficiary that has previously seen incredible year-to-date growth. The stock surged from around $285 per share to start the year to more than $1,200 per share at its peak in March. Now trading around $550, SMCI stock still looks like a top growth stock worth considering, given its newfound multiple of just 15 times forward earnings.
Strong AI demand has led to server demand soaring. Super Micro’s direct liquid cooling technology provides increased server efficiency (up to 40% energy savings) and a range of other benefits large-scale players are increasingly considering. The company’s strong demand has been reflected in constructing three new Silicon Valley facilities. Additionally, the company is growing its footprint in Taiwan and Malaysia to meet surging AI and liquid-cooled data center demand. These expansions aim to double its AI SuperCluster capacity and strengthen its position in the AI and cloud infrastructure markets.
In its Q4 report ending June, net sales surged by $5.3 billion, and net income also rose by $5.51 per share. For FY 2025, the revenue is expected to reach $30 billion, which surged twice the size of the company’s overall haul in 2023. CEO Charles Liang attributed this growth to the high demand for AI infrastructure. So long as this trend remains in place, I think SMCI stock looks very attractive at current levels.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
