3 Stocks to Buy Before the Market Reprices Them I June 22, 2026

Key Concepts

• Wide Moat: A Morningstar term for companies with sustainable competitive advantages that protect long-term profits.
• Fair Value Estimate: The intrinsic value of a stock as calculated by Morningstar analysts.
• AI Infrastructure: The hardware and networking components (GPUs, memory, connectivity) required to build and run AI models.
• ASICs (Application-Specific Integrated Circuits): Custom-designed chips optimized for specific tasks, often more efficient than general-purpose GPUs.
• Optics: Fiber-optic technology used for high-speed data transmission in data centers.
• Memory Cycle: The cyclical nature of the semiconductor memory market, characterized by periods of supply constraints and price surges followed by corrections.
• Switching Costs: The costs or friction a consumer faces when moving from one product ecosystem to another (e.g., iOS).

---

Market Outlook and Earnings Previews

• Micron: Trading at over twice its $455 fair value estimate. Benefiting from a strong memory pricing cycle driven by AI demand.
• FedEx: Up 38% year-to-date due to cost-cutting and the spin-off of its less-than-truckload business. Morningstar considers it overvalued at its current price, with a fair value estimate of $257.
• Carnival: Trading near its $35 fair value estimate, supported by the reopening of the Strait of Hormuz and new food/beverage initiatives.
• Apple: Morningstar raised its fair value estimate to $290 (from $270) following Tim Cook’s announcement of price increases to offset inflation in memory chip costs.

---

Deep Dive: Apple’s Business and AI Strategy

• Core Drivers: The iPhone remains the primary revenue driver (over $200 billion annually). The "Services" segment (App Store, Apple Music, Apple Pay) is the second pillar.
• Competitive Advantage: Apple’s "wide moat" is built on the iOS ecosystem. The integration of hardware (Mac, iPad, Watch) and software creates high switching costs for users.
• AI Integration: After a "flop" in 2024, Apple has refined its strategy under "Apple Intelligence." They are outsourcing frontier model development to partners like Google while focusing on integrating AI into the user experience.
• Valuation Perspective: Morningstar views Apple as slightly overvalued (trading near $300 vs. $290 fair value). Analysts do not believe the upcoming AI software updates will trigger a massive "inflection" in hardware sales, as current devices are already capable of running the software.

---

Investing in the AI Era: Methodology

• Predicting the Future: Morningstar analysts acknowledge the difficulty of valuing tech stocks in a rapidly evolving AI landscape. The pace of data updates has led to more frequent changes in fair value estimates and higher "uncertainty ratings."
• Long-Term Focus: Morningstar emphasizes long-term investment over short-term speculation. They caution against "chasing" stocks that are ballooning due to temporary supply constraints.
• Margin of Safety: Investors are encouraged to seek entry points at 4 or 5-star levels, prioritizing high-quality companies over "fair" companies at "great" prices.

---

Recommended Stocks (Undervalued)

1. Broadcom ($650 Fair Value): The number two player in AI compute chips. They specialize in custom ASICs (XPUs), which are more efficient for specific applications than general-purpose GPUs. Fundamentals are seen as accelerating into 2027–2028.
2. Arista Networks ($190 Fair Value): A leader in high-performance networking. They provide the connectivity required to link tens of thousands of GPUs in AI clusters. Analysts dismiss concerns regarding competition from Nvidia and the shift toward optics.
3. Amphenol ($190 Fair Value): A "best-of-breed" component manufacturer. They provide critical connectivity points (cables, power, fiber optics) within data centers. Despite market fears regarding fiber-optic shifts, Morningstar views their portfolio as highly resilient and differentiated.

---

The "Bubbly" Warning: Memory Stocks

• The Argument: Memory stocks (e.g., Micron, Samsung, SK Hynix) are currently experiencing a "breathtaking" upcycle due to supply constraints.
• The Risk: Morningstar views these as commodities. They argue that the current high prices are finite and cyclical. With significant new supply expected to come online in 2027–2028, analysts expect downward pressure on both prices and stock valuations.

---

Synthesis

The current market environment is defined by a rapid, AI-driven transformation of infrastructure. While companies like Broadcom, Arista, and Amphenol offer high-quality, long-term value through their specialized roles in the AI supply chain, investors should remain wary of cyclical "commodity" sectors like memory. Morningstar’s core philosophy remains anchored in long-term quality and valuation discipline, advising investors to look past short-term speculative hype and focus on companies with durable competitive advantages.