AI Boom Isn't Over: 4 Stocks to Buy the Dip Amid Tech Bloodbath

The artificial intelligence sector has shaken Wall Street, with AI equities enduring a prolonged slump and major market indexes recording their steepest drops in years last week. As anxiety mounts regarding the future of AI investments following midterm election results that granted Democrats control of both the Senate and House, investors have been shifting away from riskier assets.

Despite the turmoil, AI stocks retain significant potential as demand outpaces supply. The broader market rally over recent years has been largely driven by tech stocks, with major technology giants continuing to enter the market through substantial capital investments.

In light of these conditions, it is advisable for investors to consider purchasing dips in AI-related equities such as Arista Networks, Inc. ANET, Fabrinet FN, Analog Devices, Inc. ADI, and Advanced Micro Devices AMD.

AI Stocks Suffer

On Thursday, the Nasdaq experienced its most severe single-day drop in 19 months, plunging 5.5% to close at 24,315 points and entering correction territory. The S&P 500 also recorded its largest one-day decline in more than six years.

These losses occurred just after Democrats secured victories in the U.S. midterm elections, sparking concerns that their win might result in slower data center spending, a key focus for several technology firms.

Heavy investment in data centers, driven by surging AI demand, has been a primary catalyst for the market rally. Today, a significant portion of the technology sector revolves around AI.

Furthermore, investor sentiment was negatively impacted by news regarding NVIDIA Corporation NVDA CEO Jensen Heung's affair with a Chinese woman. NVIDIA has been central to the AI boom that began several years ago, and its shares fell following this revelation.

Nevertheless, AI stocks maintain considerable upside potential. Major cloud providers are investing hundreds of billions of dollars into data centers and networking infrastructure. With demand for advanced computing capacity still exceeding available supply, companies providing essential hardware and infrastructure are well-positioned.

Additionally, AI is rapidly transitioning from an experimental stage to an advanced phase, as technology giants begin to report concrete benefits from its implementation.

Simultaneously, the recent downturn in AI stock prices has helped reduce inflated market valuations, bringing earnings multiples down to more reasonable levels. This shift creates potentially appealing entry points for selective long-term investors, suggesting a 'buy the dip' strategy would be prudent.

4 AI Stocks With Upside

Arista Networks

Arista Networks, Inc. delivers cloud networking solutions designed for data centers and cloud computing environments. ANET provides 10/25/40/50/100 Gigabit Ethernet switches and routers tailored for next-generation data center networks. The company utilizes various silicon architectures across its product line. Central to ANET's cloud networking offerings is the Linux-based Extensible Operating System, which was designed to be fully programmable and highly modular.

Arista Networks' projected earnings growth rate for the current year stands at 40.9%. The Zacks Consensus Estimate for current-year earnings has risen by 2.9% over the last 60 days. ANET currently holds a Zacks Rank #1 (Strong Buy). You can view the full list of today's Zacks #1 Rank stocks here.

Fabrinet

Fabrinet supplies advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services to original equipment manufacturers of complex products. Its services include process design and engineering, supply chain management, manufacturing, complex printed circuit board assembly, advanced packaging, integration, final assembly, and testing. FN produces optical communication components, modules, and sub-systems, industrial lasers, automotive parts, medical devices, sensors, and customized optics and glass for both customer programs and the merchant market. Fabrinet's operations focus on data center and communications infrastructure markets, with additional exposure to automotive, industrial, and other sectors.

Fabrinet's anticipated earnings growth rate for the current year is 40%. The Zacks Consensus Estimate for current-year earnings has increased by 6.3% over the past 60 days. Currently, FN holds a Zacks Rank #1.

Analog Devices, Inc.

Analog Devices, Inc. manufactures semiconductor devices, specifically analog, mixed-signal, and digital signal processing integrated circuits. ADI's product portfolio includes amplifiers and comparators; analog-to-digital converters; digital-to-analog converters; video encoders and decoders; embedded processing products and DSPs; MEMS and temperature sensors; RF/IF components and converters; power and thermal management ICs; audio/video converters, amplifiers, CODECs, filters, and processors.

Analog Devices' expected earnings growth rate for the current year is 66.9%. The Zacks Consensus Estimate for current-year earnings has improved by 0.3% over the last 60 days. ADI currently carries a Zacks Rank #2 (Buy).

Advanced Micro Devices

Advanced Micro Devices has bolstered its position in the semiconductor market by evolving from a pure-play consumer-PC chip provider into an enterprise-focused company. AMD has emerged as a formidable competitor to NVIDIA's dominance in the graphics processing unit or GPU market, leveraging its Radeon chips.

AMD's processors are primarily driven by the company's proprietary Zen CPU and Vega GPU architectures. Advanced Micro Devices reported revenues of $22.68 billion in 2023.

Advanced Micro Devices' projected earnings growth rate for the current year is 82.5%. The Zacks Consensus Estimate for current-year earnings has risen by 1.6% over the past 60 days. AMD currently holds a Zacks Rank #2.

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Analog Devices, Inc. (ADI) : Free Stock Analysis Report

Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report

Fabrinet (FN) : Free Stock Analysis Report

Arista Networks, Inc. (ANET) : Free Stock Analysis Report

NVIDIA Corporation (NVDA) : Free Stock Analysis Report

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