2 Cheap Artificial Intelligence (AI) Stocks That Are Primed to Rebound

Artificial intelligence (AI) investing and the word "cheap" don't often go hand in hand. Many of these stocks got a bit overheated during the market's run over the past few years and sold off a bit recently. However, I think a few of these stocks overcorrected and can now firmly be considered cheap.

Among the cheap stocks are Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Taiwan Semiconductor Manufacturing (NYSE: TSM). Both are actually priced cheaper than the broader market, as measured by the S&P 500, which gives me confidence to label them cheap.

However, I wouldn't be surprised to see both rise to a premium valuation again, making them strong stocks to consider buying now.

Alphabet

Alphabet is the parent company of Google, YouTube, the Android operating system, and many other businesses. However, most of its revenue comes from advertising. Advertising is a tricky business, as it's one of the first expenses that businesses cut when an economic downturn is looming. This harms Alphabet's business, but at least during Q1, it didn't seem to have much of an effect.

In the first quarter, Alphabet's revenue rose 12% year over year to $90 billion. Google Cloud was the star of the show, with revenue rising 28%, but its legacy business is also doing well. Google Search and YouTube ads both grew by 10% year over year, demonstrating their resiliency.

However, it's the future that investors want to know about. Investors are concerned about how tariffs will impact Alphabet's business, because the products that are advertised on its various platforms will be affected. Management was quite confident in its ability to handle this headwind, and only expects a slight effect in Q2. One of the areas of strength that's helping Alphabet is its AI Overviews, which summarize Google search results. The company sees strength in this area, and the boost that it's providing could balance out any tariff-related headwinds.

This is great news for investors, but the stock really hasn't accounted for it yet. It's priced at a mere 17 times forward earnings, which is significantly less than the market's 20.5 times forward earnings.

GOOGL PE Ratio (Forward) data by YCharts

With this cheap price in mind, I think Alphabet stock is an excellent one to scoop up on sale, as it has the tools it needs to weather the tariff-induced storm.

Taiwan Semiconductor Manufacturing

Taiwan Semiconductor Manufacturing, or TSMC, is a massive beneficiary of the AI buildout trend, as it is a chip supplier for many of the top AI players. Because almost none of these companies can fabricate their own chips, they farm out the work to a foundry like TSMC. This is an excellent relationship, and it also helps that TSMC is the best in the world at what it does.

Its position also gives management an unparalleled view into chip demand, and when they speak, investors should listen. Over the next five years, management expects AI-related revenue to grow at a 45% compound annual growth rate, with overall revenue rising at nearly a 20% CAGR. That's huge growth, but the market isn't giving the stock the respect it deserves.

TSM PE Ratio (Forward) data by YCharts

At less than 19 times forward earnings, TSMC is also cheaper than the broader market. This discount can be directly tied to tariffs. Currently, there aren't any tariffs on semiconductors, but the administration has hinted at one.

Still, TSMC already began to take action on this trend. It built a $65 billion facility in Arizona, which sold out chip production capacity through 2027. It also announced an additional $100 billion investment in Arizona, where it will build another three fabrication facilities, two packaging centers, and an R&D facility.

While there is some debate as to whether President Donald Trump's policies caused this investment, the end result is the same -- more production is moving into the U.S., which is exactly what Trump wants. TSMC is too critical a partner with many big tech companies to be severely affected by tariffs, which is why the pessimism is unwarranted.

TSMC is at the center of a generational buildout, and if management's projections come true, today's cheap stock price will be worth far more in a few years.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.