Artificial intelligence (AI) stocks have been market leaders for the past couple of years, contributing to double-digit gains for the S&P 500 and Nasdaq. This success is driven by the potential of AI to streamline operations and boost earnings. Recent market corrections, however, have dampened the enthusiasm, creating a potential buying opportunity. Concerns about tariffs, government policies, and a challenging economic environment have caused a downturn in the tech-heavy Nasdaq, but the long-term growth prospects of leading AI companies remain strong. Now may be the perfect time to invest.
Two AI Stocks to Consider
1. Amazon
Amazon (AMZN) benefits significantly from AI across its e-commerce and cloud computing divisions. AI optimizes delivery routes, enhances customer experiences, and streamlines operations—crucial advantages in a competitive landscape. Amazon Web Services (AWS) generates substantial revenue and profit, exceeding a $115 billion annual revenue run rate as of last year. AWS offers a wide array of AI products and services, catering to a vast customer base. Amazon’s consistent earnings growth and ongoing cost structure improvements further enhance its investment appeal. Despite a recent price decrease of over 10% in the last month, the stock appears undervalued, trading at approximately 32 times forward earnings estimates, a decrease from over 45 times late last year. This positions Amazon as a bargain buy-and-hold opportunity at its current valuation.
2. Palantir Technologies
Another leading AI stock to watch is Palantir Technologies (PLTR). The company faced a recent dip following a proposed Pentagon budget cut. However, the Trump administration’s focus on efficiency supports Palantir’s value proposition. The software aggregates data to streamline operations and reduce costs, potentially increasing future government contracts. Palantir’s commercial business shows strong promise, posting double-digit revenue growth and record contract values, with a 134% increase in U.S. commercial contract value in the latest period. Despite its recent corrections, Palantir now has a forward price/earnings-to-growth ratio (PEG ratio) below 1, indicating a more reasonable valuation. This makes it a compelling choice for growth-oriented investors.
The current market dynamics have created a favorable environment for investors looking to capitalize on the long-term potential of the AI sector. Both Amazon and Palantir present compelling investment opportunities, given their strong fundamentals and growth prospects. The downturn should be seen as a chance to make gains, not losses.
