The AI stocks experts say are undervalued

While AI companies have been a winning investment strategy in recent years, the narrative for many people has now shifted towards apprehension.

Investors worry the companies won’t to live up to their lofty valuations as stocks like Nvidia have increased in price by 1,441% in the past five years. That’s more than the S&P 500 has increased in the past 30 years.

Despite the uptick the AI theme has already seen, experts from Morningstar, an investment data company, say the sector is undervalued by 20%. The team sees AI opportunities as cyclical and says this entry point has emerged following the market tumble at the beginning of this year.

Many people will already have quite significant AI exposure simply by being invested in tracker funds. The MSCI World’s top holdings are in Nvidia, Apple, Microsoft, Amazon, and Google parent company Alphabet, all companies with large investments in AI. The theme is not limited to tech companies either, with communication services increasing AI exposure. Other industries, such as energy, work as suppliers to AI companies, meaning there could be more demand in services if expansion continues.

Of course, wide exposure to the AI theme also means vulnerability across these sectors, if production were to slow or change. Many of the companies are strongly reliant on each other, meaning that a break in the chain could cause problems for many more. Nvidia, for example, controls about 85% of the GPU market, computer processing that is essential to AI learning. While there are other competitors in this space, it would be a difficult gap to fill and cause large spread disruption in the meantime.

Below are the stocks Morningstar has identified as most closely linked with the AI theme that are undervalued according to their metrics.

While some of these names, like Nvidia, TSMC and Microsoft are obvious plays on the theme, others might have escaped investor’s attention so far and have a slightly smaller role in their portfolio.

Oracle, a database software company, accounts for about 0.4% of the MSCI World and 0.5% of the S&P 500. The company joined the stock market in 1986 at just $15 per share and now is priced at $193.84. But investors have been on a bit of a wild ride in the past year, as the share price jumped past $300 in September 2025 before a steady decline throughout the rest of the year.

DigiCo Infrastructure REIT, an Australian company which creates datacentres, is not part of the MSCI World or many other major indices, meaning investors would need to specifically seek out exposure. Expert claims of value are perhaps less surprising for the company, as it has lost about 6% year to date, and 47% since it entered the market in December 2024. While the company was investing in development in the US, they have since decided to pull back due to costs.

Just because a company may have potential in the AI theme doesn’t mean investors need to be involved, especially considering they may have significant AI exposure elsewhere if they own a global tracker, for example.

The diversification issue

It’s difficult to determine concretely if a company or theme is under or overvalued. This is why diversification is so important, because it means not all your portfolio is riding on the same theme.

This is a main concern that comes along with the AI theme, because there is so much exposure in broad indices. A report from Morgan Stanley estimates that 49% of North American companies now stand to benefit from AI adoption, as do 43% of those in Europe. While there is debate around if this is being accurately reflected in prices, it’s clear that positively or negatively, many businesses will be impacted at least to some degree.

This has caused many investors to take the approach of purposefully looking away from the theme for investment opportunities. These strategies don’t need to be mutually exclusive. For investors who do like to choose stocks, there very well may be undervalued companies poised to benefit from AI. But to balance the risk, holding investments not directly associated with the theme as well can act as much-needed protection.

While AI seems like a theme that is here to stay, the path may not be linear. Investors will likely need to be ready to ride out bumps to reap the greatest rewards.