3 Chip Giants Still Worth Buying Despite Massive Gains

The S&P 500 is overvalued, according to its cyclically adjusted price-to-earnings (CAPE) ratio, which is historically high at 41. That is the highest it's been since the 1999-2000 dot-com boom. We all know what happened after that peak.

Are we on a similar track right now? That is impossible to know, because this is a different market and the current boom is generated more by real earnings, thanks mainly to AI, than speculation.

But what it does mean is that tech and AI stocks with high valuations have little room for error, so investors should be careful to look at the various valuation metrics, like the P/E ratio, before piling into a high-growth stock.

Still, there are some incredibly successful stocks with massive returns that remain reasonably valued, and even undervalued. These are the AI stocks you want to focus on. Here are three high-performing chip stocks with more room to run.

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1. Micron Technology, up 297% year to date

Micron Technology (NASDAQ: MU) has been a juggernaut, rising 297% year to date and 831% over the past 12 months.

It almost defies logic that Micron is still a bargain. While its trailing P/E ratio is 53, Micron's forward P/E is just 10 -- which makes it darn near a value stock. And its five-year PEG ratio, which tracks valuations based on long-term earnings expectations, is just 0.36. For reference, a PEG ratio below 1 means a stock is undervalued.

But when you consider the massive earnings power of Micron, the valuation makes more sense. The leading manufacturer of memory chips for AI data centers and other applications can't keep up with the demand. The memory chip stock boom is the next phase of AI, as the massive AI infrastructure that has been built needs memory and storage chip stocks to accommodate all of this AI computing power -- and Micron is at the center of it.

Micron literally can't keep up with demand, as its AI chips are sold out already for 2026, which has allowed it to raise prices, boosting revenue even more. So, incredibly, even after an 800%-plus 12-month return, Micron has more room to run.

2. Western Digital, up 333% year to date

Western Digital (NASDAQ: WDC) is similar to Micron in that it has found itself in the next wave of the AI boom. While Micron is largely a memory stock, Western Digital is a data storage stock. It stores AI data for data centers and hyperscalers on hard disk drives. Its services are in high demand, for many of the same reasons as Micron -- the massive build-out of AI infrastructure requires storage.

And like Micron, Western Digital's hard disk storage drives are sold out for 2026 with agreements extending into 2028 and 2029. This gives Western Digital enormous pricing power. Analysts anticipate 35% revenue growth in 2026 and 38% revenue growth in 2027, while earnings are anticipated to almost double this year and next year.

This growth has put Western Digital stock on a massive heater. The stock is up 333% year to date and 1,160% over the past 12 months. But it is still trading at a decent valuation of 39 forward earnings. That's a tad high, but given the huge demand and its earnings power, it is not unreasonable. Further, its PEG ratio is just 0.66, which means it is undervalued compared to its long-term earnings expectations.

Like Micron, Western Digital is on an unbelievable run that should keep going.

3. Taiwan Semiconductor, up 54% year to date

Taiwan Semiconductor Manufacturing (NYSE: TSM), also known as TSMC, is the leading chip foundry, meaning it makes the chips for other companies that design them. Making chips is all it does; it doesn't design its own, so it's agnostic in that sense, welcoming all customers, including chipmakers and hyperscalers like Nvidia, Advanced Micro Devices, and Apple, to name a few.

It is also the dominant player in its market, particularly when it comes to manufacturing AI chips. TSMC owns a roughly 90% share of the advanced and AI chips market because of its scale and pricing power, its advanced technologies, and its reputation. This makes TSMC an entrenched part of the AI boom, positioned to make the chips for the AI chip leaders, no matter who they are at any given time.

The stock hasn't put up outrageous numbers like Micron and Western Digital, as it's only up 54% year to date and 116% over the past year. But it is reasonably valued with a forward P/E ratio of 29, which makes it a strong buy given its dominance.

Dave Kovaleski has positions in Apple and Micron Technology. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Micron Technology, Nvidia, Taiwan Semiconductor Manufacturing, and Western Digital. The Motley Fool has a disclosure policy.