Nasdaq Market Correction: AI Stocks to Consider Amid the Sell-Off

Nasdaq Stock Market Sell-Off: 3 Stocks to Put on Your Buy List | The Motley Fool

The stock market's jitters are spreading quickly. Just a few weeks after major market indexes peaked, stocks are plunging with the Nasdaq Composite (^IXIC 2.87%) already having entered a correction (a decline of more than 10% from a recent peak). Stocks fell sharply for the third straight day on Monday as investors wrestled with downbeat economic data and a shock in Japan after the Nikkei fell double-digits as the Bank of Japan surprised investors with a rate hike. That action began a massive unwinding of a global "carry trade" in which investors were borrowing yen at near-zero rates and investing it elsewhere. Seasoned investors know that while stock market sell-offs are scary, they also offer good buying opportunities. No one knows how long this correction will last, but it's a good idea to have a list handy of stocks to buy if the decline continues. Keep reading to see three top stocks that are on sale right now. Alphabet (GOOG 1.92%) (GOOGL 1.94%) has been a top tech stock for over a decade, a starring member of both the FAANG stocks and the "Magnificent Seven," and its eminent position shows no signs of changing, despite the upheaval from generative AI technology. Alphabet has overcome early doubts about its AI capabilities and has continued to put up strong growth in recent quarters. It's also driven margins higher thanks in part to a round of layoffs last year. Its core digital advertising business led by Google Search continues to deliver solid growth, and its cloud computing business has ramped up profits after years of losses. As of Monday, Alphabet stock is now down 17% from its peak a few weeks ago, and the stock already looks like a good value at a price-to-earnings ratio of 23. Even if the economy enters a recession, Alphabet's competitive advantages will remain intact, and the stock should eventually recover its recent losses and return to new heights. Its second-quarter earnings report included revenue growth of 14% and a jump in operating income of 26%, showing that there's still plenty of growth left for the tech giant. Taiwan Semiconductor Manufacturing (TSM 6.13%), or TSMC, is the world's largest contract semiconductor foundry. It's an essential cog in the global economy during normal times, but in the AI revolution it's become even more valuable as it makes roughly 90% of the world's advanced chips. It's established a competitive advantage through its technology, customer relationships with the likes of Apple, Nvidia, AMD, and Broadcom, large capacity, and a history of execution. Like the rest of the semiconductor sector, TSMC is subject to cyclical forces, but its business has been on an upswing following a slowdown in the sector a year ago. In the second quarter, revenue jumped 40%, or 33% in dollars to $20.8 billion, while net income was up by a similar rate. Taiwan Semi stock is now down 25% from its peak a few weeks ago and trades at a modest P/E valuation of 28, which looks like a great price for a company with its competitive advantages and growth rate. Advanced Micro Devices (AMD 5.95%) might not seem as resilient as the other two stocks on this list, but the chipmaker deserves a closer look following a strong earnings report last week. AMD is down by more than 40% from its peak in March when enthusiasm for its new AI chips seemed to peak, but the stock is also down 28% from the Nasdaq peak just a few weeks ago, even as its earnings report impressed investors last week. However, AMD now seems to be capitalizing on the AI boom. When stocks fell sharply on Friday, AMD finished flat, and it closed Monday up 2% even as the Nasdaq lost 3.4%. Part of the reason for those gains is the dismantling of rival Intel, which announced that it would cut at least 15% of its workforce last Thursday night and stop paying a dividend. Intel's quarterly results and guidance also missed expectations, showing ongoing challenges in its foundry business and beyond continue to plague the company. That's opened up an opportunity for AMD, and the company already seems to be capitalizing on the AI data center market with its new Mi300 chip. In the second quarter, AMD reported a 115% jump in data center revenue to $2.8 billion, the segment driving the AI boom. While weakness in the embedded and gaming segments weighed on overall revenue growth, the momentum in the data center market bodes well for future results. On an adjusted earnings per share basis, the stock trades at a P/E of 49, which looks like a good price considering the breakout data center growth. With Intel faltering, and revenue ramping in key areas, AMD looks like a good buy on any weakness from the market panic.

Nasdaq Market Correction: 2 Brilliant Artificial Intelligence (AI) Stocks to Buy on the Dip | The Motley Fool

Alphabet and Super Micro Computer are trading at reasonable prices. The Nasdaq Composite closed in correction territory on Friday, Aug. 2 as investors reacted to a disappointing jobs report. A correction occurs when an index declines at least 10% from its record high, but the Nasdaq has now tumbled 13%, and several stocks have fallen more sharply. Shares of Alphabet (GOOGL 1.94%) (GOOG 1.92%) and Super Micro Computer (SMCI 3.50%) have slipped 17% and 60%, respectively. Yet both stocks trade at reasonable valuations, and history says the Nasdaq correction could quickly reverse course. Since 2010, the Nasdaq has returned an average of 21.9% during the 12 months following its first close in correction territory. Here's why Alphabet and Supermicro are worth buying today. Alphabet provides advertising and cloud services. Its Google subsidiary is the "biggest digital advertiser in the world, accounting for 27.7% of revenue share," according to eMarketer. The foundation of that success is Google Search, but the company has six products with more than 2 billion monthly users that support its ability to source data and deliver relevant ads across the internet. Google is also the third largest cloud infrastructure and platform services (CIPS) provider, albeit a distant third to Amazon and Microsoft. However, the company has been gaining market share due, in part, to strength in artificial intelligence (AI). For instance, Forrester Research has recognized its leadership in AI infrastructure and large language models. Google accounted for 12% of CIPS spending in the June quarter, up from 11% in the prior year, and that figure could continue climbing as AI spending ramps up. Alphabet reported solid financial results in the second quarter with only one blemish. YouTube advertising revenue missed estimates, but the company still exceeded analysts' expectations on the top and bottom lines. Total revenue increased 14% to $84.7 billion, and GAAP net income rose 31% to $1.89 per diluted share. Nevertheless, the stock sold off after the company announced its results and has continued moving lower. Google is gradually losing market share in digital advertising, but the company could curb or reverse that trend through product innovation. For instance, generative AI overviews are driving engagement with Google Search, and AI-powered advertising tools are boosting conversions and streamlining workflows for media buyers, according to CEO Sundar Pichai. Those innovations create new monetization opportunities. Wall Street expects Alphabet to grow earnings at 17.4% annually over the next three years. That makes the current valuation of 22.7 times earnings look rather cheap. Specifically, those numbers give a price/earnings-to-growth (PEG) ratio of 1.3, which is a discount to the company's five-year average of 1.5. Investors should feel confident buying a small position in this growth stock today. Supermicro manufactures high-performance compute platforms for cloud and enterprise data centers. That includes individual servers and storage systems, as well as full rack scale solutions that integrate compute, storage, and networking to provide clients with a turnkey solution for workloads like data analytics and AI. Supermicro has achieved a leadership position in AI servers due to internal manufacturing capabilities and a unique building-block approach to product design. Specifically, the company handles most research and development internally and uses common electronic building blocks across product lines to quickly assemble a broad range of servers featuring the latest chips from suppliers like Nvidia. Ultimately, that lets Supermicro bring new technologies to market more quickly than the competition, usually in two to six months. As a result, the company has become the go-to option for AI servers and is expected to gain share. Bank of America analysts estimate that Supermicro will account for 17% of AI server sales by 2026, up from 10% in 2023. But Tom Blakely at KeyBanc believes the company could capture 23% market share by 2025. Supermicro reported mixed results in the June quarter. Revenue increased 143% to $5.3 billion on record demand for AI infrastructure. However, investments in direct liquid cooling (DLC) technology caused the company's gross profit margin to contract, such that non-GAAP earnings increased just 78% to $6.25 per diluted share. But management says gross profit margin should normalize by the end of the year as DLC shipments reach scale. Looking ahead, JPMorgan Chase expects AI server spending to increase sixfold between 2023 and 2028. Supermicro should be a major beneficiary, not only because it can bring AI-optimized servers to market quickly, but also because it has emerged as an early leader in DLC technology. Demand for liquid-cooled servers is expected to increase rapidly in the next few years because they lower operational costs by reducing data center power consumption. Wall Street expects Supermicro to grow adjusted earnings by 40% annually through fiscal 2026. That makes the current valuation of 23 times adjusted earnings look quite cheap. As a caveat, Supermicro shares could sink even lower if the company misses earnings estimates going forward. Investors comfortable with that risk should buy a small position today.