The Nasdaq Composite (^IXIC 2.61%) has recently faced market turbulence, moving closer to what’s often termed a correction—a decline of 10% or more from its recent high. This sell-off, fueled by factors like concerns over new tariffs and high market valuations, may be unsettling to some investors. However, patient investors focusing on the future of artificial intelligence (AI) may see this as a chance to invest. Here are two key reasons why.
The AI Build-Out Continues
Recent earnings reports have given us insights into the substantial investments being made by major tech companies in AI. Microsoft (MSFT 2.58%), Alphabet (GOOG 1.75%) (GOOGL 1.68%), and Meta Platforms (META 2.96%) all indicated their plans to increase capital expenditures in 2025. This indicates that they will spend more on data centers and AI infrastructure. Companies continue to race towards artificial general intelligence (AGI).
CEOs such as Sundar Pichai of Alphabet and Mark Zuckerberg of Meta have emphasized that the risk of under-investing in AI is much greater than overspending, as these kinds of technological shifts can be pivotal for tech giants. This pattern is not new. The mobile market had a similar impact, enabling Apple to become the most valuable company in the world while leaving Microsoft behind. These major companies view the potential in AI to be so large that they are investing billions to create the infrastructure needed to run the AI applications, which have the potential to reshape the world like the internet did.
Another reason supports the continued AI build-out, regardless of market fluctuations. The leading tech companies in the AI revolution have considerable financial resources. Even a recession would likely not deter them from investing in AI infrastructure, as they cannot afford to miss out on the next transformative technology.
Attractive Valuations
The Nasdaq has decreased by about 10% from its peak in December, but several AI stocks have declined even more. For example, Nvidia (NVDA 5.27%), a chip maker widely considered to lead the AI boom, is down about 25% from its peak. This drop occurred despite a strong earnings report, and it was affected by worries about tariffs and a wider economic slowdown. Despite this, the sell-off comes as Nvidia continues to forecast major growth with an impressive 78% revenue increase in the fourth quarter. Furthermore, for the first quarter, Nvidia projected revenue of about $43 billion, reflecting a 65% growth rate. Nvidia’s forward price-to-earnings ratio is now just 26, which is comparable to the S&P 500 (^GSPC 2.13%). For a company experiencing such rapid growth, that seems like a good deal.
Similarly, shares of Taiwan Semiconductor Manufacturing (TSM 1.46%), the world’s largest semiconductor manufacturer, have fallen by 18% from their peak earlier this year. TSMC recorded another strong earnings report. TSMC now trades at a trailing price-to-earnings ratio of just 27. TSMC also recently pledged to invest in an additional $100 billion in U.S. foundries.
If stock prices continue to fall, stocks like Nvidia and TSMC could become even more attractive as the AI revolution should continue to move forward regardless of short-term economic issues. For long-term investors, the recent sell-off presents a good buying opportunity.
