Uncover 3 Cheap Tech Stocks
Hello! Today, I've brought this topic to you: uncovering hidden gems in the tech world. Many investors assume "tech stocks" automatically mean sky-high valuations, but what if I told you there are some genuinely high-quality tech companies trading at surprisingly attractive prices right now?
We're going to dive into three such opportunities that savvy investors might want to consider adding to their portfolios. These aren't just any cheap stocks; they are companies with strong fundamentals and solid future prospects, even as they face short-term hurdles.
Let's break down why these three "cheap tech stocks" could offer you outsized returns.
☆ Topic 1: Taiwan Semiconductor Manufacturing (TSMC) – The Unsung Titan
When we talk about the backbone of the tech world, Taiwan Semiconductor Manufacturing (TSMC) is an undeniable giant. Known as the world's largest and most advanced semiconductor foundry, TSMC manufactures the very chips that power our favorite devices and cutting-edge AI. Think of titans like Apple, Nvidia, and Advanced Micro Devices (AMD) – they all rely on TSMC's expertise. In fact, TSMC boasts a dominant 68% market share!
Despite its critical role and impressive financial performance – with first-quarter revenue surging 42% and net income up a whopping 60% year-over-year – TSMC's stock trades at a price-to-earnings (P/E) ratio of 27. While this is near the S&P 500 average of 29, consider that 60% net income growth. That makes its current valuation arguably quite cheap for such a high-performing leader.
Of course, some investors express concerns about the geopolitical location of most of its foundries in Taiwan. However, the global dependency on TSMC's chips from both the U.S. and China significantly reduces the likelihood of disruptive action. Coupled with the relentless demand driven by artificial intelligence (AI), TSMC stands as a powerful, yet reasonably priced, player poised to continue beating the market.
☆ Topic 2: Adobe (ADBE) – The Creative Powerhouse on Sale
Adobe has been a fixture in the tech industry since 1982, and chances are you've used its software. From the ubiquitous Acrobat PDF to the creative industry staples like Photoshop and Illustrator (part of its Creative Cloud), Adobe has built an incredibly loyal user base that generates nearly 75% of its revenue. Beyond creativity, its Experience Cloud offers cloud-based services leveraging advertising, marketing, and analytics for businesses.
While both segments continue to show low double-digit revenue growth, investors have been somewhat skeptical lately. Concerns about increasing competition and the monetization strategy for its new generative AI suite, Firefly, have weighed on the stock. This skepticism has led to Adobe's shares falling by almost 30% over the past year, despite its latest fiscal Q2 revenue growing 11% year-over-year.
Here's the kicker: Adobe currently trades at just 24 times earnings. This is its lowest P/E ratio since the early 2010s! Given its enduring popularity, dominant market position, and potential in AI, this discounted valuation presents a compelling opportunity for long-term investors.
☆ Topic 3: Qualcomm (QCOM) – Beyond the Smartphone
Qualcomm has faced its share of headwinds in recent years, which have understandably dampened investor enthusiasm. Its heavy reliance on China and the major blow of Apple starting to produce its own smartphone chipsets have certainly been significant challenges.
However, Qualcomm hasn't been sitting idle. The company has aggressively pivoted to diversify its revenue streams, focusing on the Internet-of-Things (IoT), automotive, PC chips, and data centers. And this strategy is beginning to show real success. In its fiscal 2025's second quarter, IoT revenue jumped 27% and automotive revenue soared 59% year-over-year! While handsets still account for the majority, the rapid growth in these new segments is a strong indicator of future potential. Overall revenue also rose 17% year-over-year, with net income up 21%.
Despite these positive shifts, the market still reflects past struggles, with Qualcomm shares falling around 33% over the past year. This has pushed its P/E ratio down to a mere 15. This low valuation likely already accounts for many of the challenges. As Qualcomm's diversified segments become stronger growth catalysts, we could see a significant surge in its stock in the coming years.
Important Disclosure: The author of the original article, Will Healy, holds positions in Advanced Micro Devices and Qualcomm. The Motley Fool, the source of the original article, has positions in and recommends Adobe, Advanced Micro Devices, Apple, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. Please conduct your own due diligence before making any investment decisions.
☆ Questions
Q1. Why are these companies considered "cheap" if they are growing or dominant in their fields?
A. The term "cheap" here refers to their valuation relative to their earnings and growth prospects, rather than just their absolute stock price. For TSMC, its P/E of 27 is low considering its 60% net income growth. For Adobe, its P/E of 24 is the lowest it's been in over a decade, despite continued revenue growth. Qualcomm's P/E of 15 is exceptionally low, reflecting market skepticism that might be overlooking its successful diversification efforts. In essence, their stock prices haven't fully caught up to their underlying business strength or future potential due to various market or company-specific concerns.
Q2. What are the main risks associated with investing in these stocks?
A. For TSMC, the primary risk is geopolitical tension in Taiwan. While discussed as mitigated, it remains a factor. For Adobe, intense competition in the software space and the market's current skepticism regarding the monetization of its new AI tools (Firefly) could impact future growth. Qualcomm faces ongoing challenges from U.S.-China relations and the loss of major clients like Apple, although it's actively diversifying. Broader market downturns or tech sector corrections could also affect all three. Always remember, investing involves risk!
☆ Conclusion
It's easy to fall into the trap of thinking all high-quality tech stocks are out of reach. But as we've seen with Taiwan Semiconductor Manufacturing, Adobe, and Qualcomm, there are compelling opportunities to invest in robust businesses at attractive valuations. These companies, while facing their own unique challenges, are demonstrating resilience, innovation, and strong financial performance that the market may be currently underestimating. Keep an eye on these tech titans – they might just be the smart, long-term plays your portfolio needs!