Rate Hike Ignites Undervalued AI Stocks Broadcom, Oracle, and Alphabet

The recent Federal Reserve rate hike has made borrowing more expensive for companies investing in AI data centers and cloud infrastructure. However, this has led to some AI-related stocks being overlooked or mispriced.

Three such stocks highlighted by Simply Wall St are Broadcom (AVGO), Oracle (ORCL), and Alphabet (GOOGL). These companies are crucial to the AI build out, with Broadcom providing high-speed networking chips and private cloud software for large language models like ChatGPT. Oracle's databases and business software connect directly to the ChatGPT and enterprise AI build out, while Alphabet powers much of the internet through Search, YouTube, and Android.

Broadcom generates around US$59.4 billion from Semiconductor Solutions and US$29.7 billion from Infrastructure Software, reflecting a business that goes beyond AI while being tightly linked to data center demand. Oracle generates about US$62.8 billion from cloud and software, US$5.8 billion from services, and US$3.2 billion from hardware. Alphabet's Google Cloud unit contributes around US$77.6 billion of revenue.

The biggest impediment to growth for these companies may not be demand itself but rather turning that demand into revenue by delivering capacity faster and faster. A single hidden swing factor in the AI infrastructure build could subtly shift the balance between demand and returns, affecting earnings power.