The technology companies involved in generative artificial intelligence have boosted the large cap. As the valuations of these companies rise, some on Wall Street are worried they may experience a pullback.

Nvidia (NVDA.O) is currently one of the hottest technology stocks, with a forward P/E ratio of 40.2, slightly higher than the five-year historical average of 39. The forward earnings of the largest company in the United States by market cap, Microsoft (MSFT.O), are 33.6 times higher, higher than the five-year average of 29. By comparison, the S&P 500 index currently has a P/E ratio of approximately 21.

However, not all technology companies have such high valuations. To find affordable technology companies, Barron’s asked Dow Jones Market Data to find the five cheapest stocks in the S&P 500 information technology sector based on 12-month forward P/E ratios. Western Digital (WDC.O), HP (HPQ.N), Hewlett Packard Enterprise (HPE.N), Gen Digital (GEN.O), and Jabil (JBL.N) all made the list.

In this industry, Western Digital is the cheapest, with a forward P/E ratio of 9.4, far below its five-year historical average of 43.

As of last Friday's close, Western Digital's stock price has risen by 45% this year. In the same period, the S&P 500 index has risen by 15%.

The rise in Western Digital's stock price is due to the continued improvement in the demand for storage chips. However, because analysts surveyed by FactSet expect the company to report an adjusted loss of 64 cents per share in fiscal year 2024, its valuation is still low.

After the company reported third-quarter financial results in April, Wade Bush analyst Matt Bryson wrote in a research report, “We believe Western Digital's guidance appears to be very conservative in the face of better NAND pricing dynamics.” Bryson's rating for the stock is outperforming the market, with a target price of $85, about $9 higher than Monday's stock price.

HP and Hewlett Packard Enterprise are also two of the cheapest technology stocks. HP, which focuses on personal computer business, has a forward P/E ratio of 9.6, while information technology company Hewlett Packard Enterprise has a forward P/E ratio of 10.4.

HP has been dealing with the issue of weak demand for personal computers. During the epidemic, many consumers purchased personal computers, but demand has now decreased. In addition, inflation and interest rate pressures have squeezed consumers, making buying laptops less appealing.

However, after reporting its earnings for May, HP said that the launch of personal computers equipped with new artificial intelligence features should boost sales in 2025 and 2026. The stock has risen by about 16% this year. Analysts expect the company to report earnings per share of $3.45 in fiscal year 2024, higher than last year's $3.28 per share, but lower than $4.08 per share reported in 2022.

After the news of the company's approximately $13 billion deal with Juniper Networks, Hewlett Packard Enterprise's stock price initially took a hit. But the stock later turned a profit and has risen by 25% this year.

Investors are excited about the company's artificial intelligence opportunities, particularly the demand for its AI servers. It is expected to earn $1.92 per share this year, lower than $2.15 per share in 2023.

BofA Securities analyst Wamsi Mohan wrote in a research report in June after the company released its earnings that he remains neutral on the stock because “AI revenue is increasing and liquid cooling technology may become a near-term competitive advantage, but given the suspension of Juniper Networks and the potential restructuring costs may limit the increase in FCF, we believe the recovery will take time.” Mohan has set a target price of $24 for the stock, about $3 higher than Monday's stock price.

Consumer safety software company Gen Digital is fourth on the list, with a forward P/E ratio of 11. The stock has risen by 10% this year, receiving a significant boost after the company reported better-than-expected fourth-quarter financial results and announced an increase in stock buyback authorizations. The expected full-year earnings per share are $2.21, higher than last year's $1.96 per share.

Jabil is the fifth cheapest stock, with a forward PE of 12. The stock of the electronic parts supplier has fallen 15% this year. The company stated in June that "our growth prospects in autos and transportation business have further weakened compared to March's estimate."

Analysts surveyed by FactSet expect Jabil to report earnings per share of $8.42 in 2024, down from $8.63 per share last year.

Cheap stocks do not necessarily mean they should be bought. However, this list may be a good starting point for further research. You may find stocks that have growth at a discount.