AI-Driven Growth and Undervalued Exposure in Storage and Entertainment Sectors

The Federal Reserve's 2025–2026 policy shifts, marked by rate cuts and accommodative monetary conditions, have created a tailwind for AI-driven sectors, particularly storage and entertainment. According to the outlook, inflation remains slightly above 2% but under control, the Fed's flexibility has anchored investor expectations, fueling optimism for AI-related innovations. This environment has amplified demand for companies leveraging AI to enhance productivity and scalability, with storage infrastructure and entertainment platforms emerging as key beneficiaries according to analysis. Below, we analyze strategic stock picks for 2026, focusing on undervalued exposure in these sectors.

Storage Sector: Capitalizing on AI-Driven Infrastructure Demand

The storage sector is at the forefront of AI's infrastructure revolution, with companies like Samsung Electronics (SEC) and Pure Storage (PSTG) positioned to capitalize on surging demand for high-bandwidth memory (HBM) and AI-optimized data solutions.

Samsung Electronics (SEC) is a prime example of undervalued potential. KB Securities analyst Jeff Kim highlights that SEC's valuation is "severely undervalued" despite its dominance in the DRAM market and pivotal role in the AI-driven memory cycle. HBM4, critical for AI training and inference, is projected to see a 203% year-on-year shipment growth in 2026, driven by demand from clients like Google, Microsoft, and Amazon. Kim forecasts a sharp rise in SEC's fourth-quarter 2025 performance, with revenue and operating profit surging as HBM adoption accelerates.

Pure Storage (PSTG) also presents compelling upside. Analysts have raised its fair value target to $95.16 per share, reflecting confidence in its AI-centric storage solutions and enterprise demand. A discounted cash flow (DCF) model estimates its intrinsic value at $76.11, indicating a 7.5% undervaluation at the current price of $70. Pure's FlashBlade//EXA platform, tailored for AI workloads, is gaining traction in hyperscale environments, with remaining performance obligations (R&D) growing 24% year-over-year according to analysis. However, margin pressures from R&D investments and hyperscaler pricing dynamics remain risks.

Entertainment Sector: AI as a Revenue Multiplier

The entertainment sector is witnessing a valuation renaissance as AI transforms content creation, personalization, and monetization. Gaming and media companies integrating AI into strong intellectual property (IP) are commanding 2–3x higher valuation multiples than AI-laggard peers.

Lionsgate Studios (LION) is an undervalued contender in this space. With a fair value estimate of $8.61 versus its closing price of $7.34, the studio is leveraging AI to expand its IP across platforms, aiming to drive revenue growth. Its strategy to monetize franchises through AI-enhanced storytelling and cross-platform distribution positions it to benefit from the broader entertainment industry's shift toward data-driven engagement.

Take-Two Interactive (TTWO) exemplifies AI's revenue-generating potential. Its Grand Theft Auto Online (GTA Online) segment has generated $3 billion in microtransactions, with AI-driven personalization and live-service features amplifying player retention and monetization according to analysis. Established publishers with AI capabilities now trade at 13–15x forward EBITDA, compared to 8–10x for traditional studios.

Beyond gaming, Meta Platforms (META) is an undervalued AI adopter in the media space. Trading at a forward P/E of 24x-the lowest among the Magnificent Seven- Meta is investing heavily in AI-driven ad optimization and user engagement through initiatives like its superintelligence lab. Its 1.2 billion monthly active users across platforms provide a scalable foundation for AI monetization, making it a compelling play in the AI-entertainment nexus.

Valuation Analysis and Risks

While AI-driven sectors are attracting investor enthusiasm, valuation discipline remains critical. The S&P 500's current P/E ratio above its historical median suggests a pricey market, prompting investors to seek undervalued AI adopters. For example, Vertiv Holdings (VRTV), a non-tech infrastructure provider, is expanding capacity to support AI data centers, with partnerships like its collaboration with Nvidia reinforcing its competitive edge according to analysis.

However, risks persist. AI-related earnings expectations may outpace actual performance, leading to volatility. Additionally, the Fed's delayed data on inflation could disrupt rate-cut timelines, affecting risk assets. Investors should balance exposure between AI enablers (e.g., Samsung) and adopters (e.g., Lionsgate) to mitigate sector-specific risks.

Conclusion

The Fed's 2026 policy trajectory, coupled with AI's transformative potential, has created a unique opportunity to target undervalued exposure in storage and entertainment sectors. Companies like Samsung, Pure Storage, Lionsgate, and Meta are well-positioned to benefit from AI-driven demand, provided they execute on their growth narratives. As the AI trade matures, investors must prioritize firms demonstrating clear links between AI adoption and revenue generation, ensuring alignment with long-term value creation.