Artificial Intelligence (AI) has rapidly transformed industries worldwide.
Large language models (LLMs) like ChatGPT and Google AI are trained to understand and generate text, code, and other content in ways a human would, and businesses have adopted the technology to improve productivity and efficiency.
But the rapid uptake has also raised concerns that AI could actually disrupt software companies by reducing the need for traditional platforms.
At the same time, major advances in technology and a huge surge in investor enthusiasm saw valuations skyrocket out of pace with true business fundamentals.
And this created concern about whether AI has entered bubble territory.
After all, many Australian AI businesses are in the early stages of development. This means their share price is based on future potential rather than current earnings.
Also, Australia's technology sector is smaller than the likes of the US, which means investor interest is concentrated in a handful of AI shares, thereby inflating prices.
But the reality is that, while the AI hype is real, some ASX-listed AI stocks could now be considered undervalued.
Take Block Inc (ASX: XYZ) shares, for example.
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Why Block shares are worth the hype
Block shares closed 2.1% higher on Tuesday afternoon, at $86.63 a piece.
The US-founded payment services platform acquired Australian buy now, pay later (BNPL) company Afterpay and has continued expanding ever since.
The company posted some strong profit results late last year but was caught in a perfect storm of headwinds, including concerns about rising interest rates, regulatory scrutiny, and fear around BNPL models. The combination slashed investor sentiment towards the end of 2025, and the sell-off continued in 2026.
Even so, the company's financials continued gaining momentum. In late February, Block posted its Q4 and FY25 results, revealing a 24% jump in gross profit for the quarter and a 17% increase for the year. Its FY25 adjusted operating income came in at US$2.08 billion, representing a 20% margin.
Looking ahead, the company is guiding to a gross profit of US$12.2 billion. This represents 18% annual growth, which is expected to be achieved with an operating income margin of 26%.
What upside do analysts expect from here?
TradingView data shows that analysts are extremely bullish on Block's outlook over the next 12 months.
Two out of three analysts have a strong buy rating on the stock, and another has a hold rating. Regardless, they all expect an upside ahead.
The maximum target price is $256, which implies a potential 194% upside at the time of writing. Even the minimum $95 target price represents a 9.2% upside for investors.
It doesn't look like the bubble is bursting on this AI stock anytime soon.
