Sony Stock Might Be One of the Deep‑Value Ways To Play AI

It’s getting harder to find value within the AI scene these days, especially after the latest spike in the semiconductor stocks. With the iShares Semiconductor ETF (NASDAQ:SOXX) soaring more than 6% in a single day on Tuesday, it feels like the overheated names are just getting bubblier and bubblier. Of course, there’s still relative value in the semis. But, for the most part, you’re paying historic premiums, and if there’s any hint of a turning of the cycle, investors might be quick to take profits.

Just because AI demand is through the roof doesn’t mean the semis can keep going like this forever. In any case, it’s becoming harder to just keep watching historic gainers in the semi space from the sidelines. Micron (NASDAQ:MU) joining the $1 trillion market cap club was certainly not on the bingo cards of many going into the year.

Sony might be one of the last of the cheap AI plays — a long-term horizon might be needed, though

Just because semis are running too hot, potentially fanning bubble fears, though, does not mean there isn’t anything worthy to buy out there in some of the less-obvious corners of the market. Sony (NYSE:SONY | SONY Price Prediction) stands out as more of a hidden gem of an AI beneficiary, while investors ditch the stock over a handful of notable operating stumbles.

Whether we’re talking about the big losses from its Bungie acquisition (active development on its former cash cow Destiny 2 franchise has finally ended) or slowing PlayStation 5 unit sales amid rising component costs due to AI, it feels like Sony is on the wrong side of the AI revolution. Indeed, Sony is feeling the heat as the “memory tax” caused by the rise of AI really takes a bite out of margins.

Still, much of that negativity seems mostly priced into the stock at this point. At the time of this writing, shares of Sony go 16.89 times forward price-to-earnings (P/E). And while price hikes on PlayStation Plus might not be the way around higher DRAM prices or the write-downs over at Bungie, I do think that Sony has more than one way to shift to the right side of the AI boom in the coming years.

Apart from AI’s ability to reduce production timelines and boost productivity in the entertainment segment (Sony is already using “powerful” AI tools to help augment creators), the company could also find itself in the midst of the “physical AI” revolution as robotics takes off, paving the way for greater demand for sensory hardware.

The Taiwan Semiconductor deal could be big

Sony is in a rather unique spot, with fab kingpin Taiwan Semiconductor (NYSE:TSM) recently inking an AI sensor deal with Sony. Given Taiwan Semiconductor’s pretty much the chokepoint of the global chip scene, I’d argue that such a move demands investor attention, especially as investors crowd into the obvious trades instead of taking a hint from industry titans as to where the puck could be headed next. Undoubtedly, it’s too soon in the game to think that image sensors are the next DRAM.

As a leader in the space, though, Sony will be ready when the demand wave comes. Given the timing of the Taiwan Semiconductor deal along with Elon Musk’s ambitious Optimus manufacturing timeline, I’d argue that a robotics boom might not be all too far around the corner. The only question is whether there will be enough image sensors to go around.

Of course, Sony has become quite a messy story with the gaming business dragging it down of late. However, in due time, I do expect Sony to be lifted by AI across its segments, from entertainment to image sensors, rather than dragged down by it via the inflation in memory prices. The stock’s down over 26% from its high, but it might be all too long before investors get past that in-line quarter and AI turns from a headwind to a tailwind.