3 Undervalued AI-Driven Semiconductor Leaders: TSM, AVGO, ASML

The AI revolution is reshaping the semiconductor industry, driving unprecedented demand for advanced chips, specialized manufacturing tools, and networking infrastructure. Amid this boom, three companies—Taiwan Semiconductor Manufacturing (TSM), Broadcom (AVGO), and ASML Holding (ASML)—stand out as undervalued leaders. Each plays a critical role in the AI supply chain, yet their stock prices remain underappreciated relative to their growth potential. Let's dissect why these stocks offer compelling value for long-term investors.

1. Taiwan Semiconductor Manufacturing (TSM): The Foundry at the Heart of AI

Why It Matters: TSM is the world's largest pure-play semiconductor foundry, producing chips for AI leaders like NVIDIA and AMD. Its cutting-edge 3nm and 2nm manufacturing nodes are essential for the high-performance, energy-efficient processors required for AI training and inference.

Valuation Check:
- Trailing P/E (Aug 2024): 28.54
- Forward P/E (Aug 2024): 25.97 (vs. sector median of 30.13)
- 5-Year Average P/E: 21.74

TSM's valuation remains reasonable, especially considering its dominance in advanced node production. Its 30%+ revenue growth from AI clients in 2024 and upcoming July 2025 earnings report could solidify its position as a low-cost, high-growth bet.

Growth Catalysts:
- Expansion of 3nm capacity for AI GPUs.
- Strong demand for cloud infrastructure chips.

2. ASML Holding (ASML): The Unsung Hero of Chip Manufacturing

Why It Matters: ASML is the sole supplier of EUV lithography tools, the backbone of advanced chip production. Without ASML's technology, companies like TSM and Intel couldn't fabricate the 5nm or smaller chips critical for AI.

Valuation Check:
- Trailing P/E (Sep 2024 TTM): 38.18
- Forward P/E (2025): 40.32 (vs. semiconductor equipment sector average of ~45)

While ASML's P/E is higher than TSM's, its monopoly on EUV technology and 30%+ annual revenue growth from AI-related sales justify the premium. The July 2025 earnings report will clarify how its Q2 performance aligns with these metrics.

Growth Catalysts:
- Rising demand for EUV tools as AI chips require smaller geometries.
- U.S. and EU subsidies for domestic semiconductor manufacturing.

3. Broadcom (AVGO): Networking and AI Chip Powerhouse

Why It Matters: Broadcom dominates AI networking hardware, supplying high-speed interfaces and custom accelerators for data centers. Its Q2 2025 AI revenue surged 46% YoY to $4.4 billion, fueled by demand for large language model (LLM) infrastructure.

Valuation Check:
- Trailing P/E (Jun 2025): 54.1 (adjusted basis: 42.8)
- Forward P/E (2025): 40.52
- 5-Year Average P/E: 39.16

Though AVGO's P/E appears high, its adjusted metrics (excluding one-time costs) and 20% YoY revenue growth make it a growth stock worth the premium. The 46% AI revenue growth and Q3 guidance ($5.1B in AI sales) underscore its strategic position.

Growth Catalysts:
- AI-driven networking upgrades for cloud providers.
- Broadcom's $60B pipeline for AI infrastructure deals.

Why These Stocks Are Undervalued (or Fairly Priced)

1. TSM and ASML trade at P/E ratios below their sector averages, despite their irreplaceable roles in AI chip production.
2. AVGO's adjusted P/E aligns with its growth trajectory, especially as AI adoption accelerates.
3. All three benefit from long-term secular trends: AI's exponential data demands, cloud migration, and the need for advanced chip manufacturing.

Investment Thesis and Risks

Buy for the long term:
- TSM and ASML are defensive plays on the AI supply chain, with pricing power and recurring demand.
- AVGO is a growth stock with a clear path to scaling AI revenue.

Risks to Consider:
- Semiconductor industry cyclicality and overproduction risks.
- Geopolitical tensions (e.g., U.S.-China chip trade restrictions).
- High valuations could make these stocks volatile in market downturns.

Final Take

The AI era is here to stay, and these three companies are its unsung engineers. While valuations vary, each offers a rare combination of strategic importance, innovation leadership, and sustainable growth. For patient investors, buying dips in TSM, ASML, and AVGO now could pay off as AI reshapes the global economy.

Action Items:
- Monitor TSM and ASML's July 2025 earnings for updated P/E metrics.
- Look for dips below their 50-day moving averages as entry points.
- Hold for 3–5 years to capitalize on AI's compounding demand.

Investment decisions should be made with a diversified portfolio and thorough risk assessment. Past performance does not guarantee future results.