Chart of the Week: 3 undervalued US tech shares
Our US analysts’ top tech opportunities.
This week’s insights come directly from the US Morningstar editorial team.
Year to date performance of US tech stocks
Aussie investors are increasingly gaining exposure to US shares either through direct holdings, via ETFs or through their superannuation. US technology in particular dominates the top end of the US market, reiterating the importance of Aussie investors being across the factors driving performance.
According to Morningstar analyst Katherine Wu, technology still ranks among the year’s best-performing equity Morningstar Categories in the US. However, a recent pause in the AI infrastructure rally cut into the lead in the third quarter.
Semiconductor stocks, the AI “winners” that propelled tech’s second-quarter gains have now cooled and software shares, the AI “losers” that had plunged earlier in the year have seen signs of rebounding. Software stocks in the US closed out the quarter well ahead of semiconductors.
Finding value in the US tech space
The three US-listed companies featured below all carry Morningstar’s Wide Moat Rating, reflecting durable competitive advantages that we believe will help them outperform over the long term.
In addition, each company currently trades significantly below our analysts’ fair value estimates.
Here’s what our US equity analysts think about these three undervalued technology stocks.
Broadcom (NAS:AVGO)
- Fair Value Estimate: $650 USD (45% discount at 07 October)
- Rating: ★★★★★
- Moat: Wide
Broadcom is an amalgamation of high-value, differentiated and moaty chip and software businesses. Put simply, Broadcom is a prolific generator of cash flow. It is a terrific aggregator of firms, big and small. Its ability to acquire and streamline generates strong profits and cash flow and fuels robust shareholder returns.
We laud the company for its execution and operating efficiency, which build upon its large organic investment and help it to outperform its end markets organically.
In our view, Broadcom’s networking and custom chip businesses are its strongest and the primary drivers of the company’s wide economic moat and results.
We maintain our $650 USD fair value estimate for wide-moat Broadcom, which remains one of our top picks in semis. Our thesis for massive revenue ramps to OpenAI and Anthropic through 2028 is on track, and shares look like a bargain against this huge impending growth.
Nvidia (NAS:NVDA)
- Fair Value Estimate: $310 USD (23% discount at 07 October)
- Rating: ★★★★
- Moat: Wide
We assign Nvidia a wide economic moat rating. We believe Nvidia benefits from intangible assets around its graphics processing units and its networking and interconnectivity gear.
Nvidia also maintains strong pricing power via high customer switching costs around its proprietary software, Cuda, for AI tools, which enables developers to use Nvidia’s GPUs to build AI models.
We think Nvidia’s prospects will be tied to the AI market, for better or worse, for quite some time. We expect leading cloud vendors to continue to invest in in-house, while AMD is also working on GPUs and AI accelerators for the data center. However, we view Nvidia’s GPUs and Cuda as the industry leaders, and the firm’s massive valuation will hinge on the pace of AI buildouts in the years ahead.
We maintain our $310 USD per share fair value estimate for wide-moat Nvidia. Shares remain undervalued as the durability of artificial intelligence growth appears to be underestimated.
Sony Group Corp ADR (NYS:SONY)
- Fair Value Estimate: $34 USD (30% discount at 07 October)
- Rating: ★★★★
- Moat: Wide
Over the past decade, Sony has transformed its business model to enable more solid and stable growth by reducing the volatility of the consumer electronics business and by aggressively investing in acquiring content for its entertainment businesses such as music, movies, and games.
We assign a wide moat rating to Sony. Of Sony’s six business segments, we believe that two (game and network services, and music) are wide-moat, two (entertainment, technology, and services; and imaging and sensing solutions) are narrow-moat, and the rest (pictures and financial services) are no-moat businesses.
Our fair value estimate for Sony is USD 34 per US ADR, which implies 22.6 times price/earnings on a fiscal 2027 basis (financial year ending March 2028).
