The Nasdaq index, which fueled overall stock market advancements over the past two years, has recently taken a downturn. It has entered correction territory, having declined more than 10% since its latest peak on December 16. This significant reversal can be attributed to rising concerns about the implications of President Trump’s tariffs on the economy and corporate profits, prompting some investors to move away from growth stocks, including those in the artificial intelligence sector. Growth stocks tend to be the most affected during times of economic uncertainty, making them the first to experience losses in such climates.
Despite the apprehension surrounding investments in growth companies during challenging times, this strategy has historically yielded favorable outcomes for long-term investors. The Nasdaq has consistently rebounded and expanded post any downturn or market crash. Thus, acquiring a fund that tracks this index or selecting a few quality stocks now could position investors for substantial long-term benefits.
Currently, following recent declines, numerous AI stocks are available at appealing prices, and the narrative of AI growth is far from finished. Let’s highlight five top picks to consider during the Nasdaq correction.
1. Nvidia
Nvidia (NVDA 0.76%) represents an excellent opportunity for those seeking to invest in the AI market, which is expected to exceed $1 trillion by the decade’s end. The company is a frontrunner in the AI chip sector and has developed an extensive range of products tailored to meet the diverse requirements of its AI clients.
This focus on innovation has resulted in impressive revenue growth, with double- and triple-digit increases reported quarter after quarter, alongside profit margins exceeding 70%. With commitments to yearly updates on its chip technology, Nvidia is well positioned to maintain its industry leadership. Presently, Nvidia shares are priced at 27 times forward earnings estimates, down from a staggering 50 earlier in the year, making this a compelling time to invest in the stock.
2. Palantir Technologies
Palantir Technologies (PLTR 1.44%) provides an AI-driven platform for clients to enhance their data utilization. While it might seem unremarkable, Palantir’s AI Platform (AIP) delivers significant efficiency improvements that enable clients to make transformative decisions.
Although traditionally associated with government contracts, Palantir has recently experienced growth in its commercial sector, with both avenues displaying double-digit revenue growth. Share prices have dipped amid investor concerns regarding potential budget cuts for the Pentagon, a key client. However, Palantir’s efficiency-enhancing capabilities could lead to more government contracts and increased revenues, signaling a strong long-term outlook.
3. Alphabet
Alphabet (GOOG -0.72%) (GOOGL -0.65%) is leveraging AI to enhance its leading revenue-generating platform: Google Search, the world’s preeminent search engine. Alphabet has introduced its own large language model (LLM), Gemini, which optimizes search outcomes and improves advertiser experiences.
Gemini is also propelling growth at Alphabet’s cloud division, Google Cloud, which reported a remarkable 30% revenue increase to $12 billion in the latest quarter. As businesses flock to Google Cloud to upgrade their AI capabilities, this growth trajectory is anticipated to continue.
4. Broadcom
Broadcom (AVGO -2.19%) is a major player in networking, providing thousands of connectivity products found in homes and large data centers. Notably, demand from AI-focused customers has recently driven revenue growth.
For instance, in the most recent quarter, Broadcom’s AI-related revenue surged by 77% to over $4 billion, while infrastructure software revenue climbed 47% to $6.7 billion. The company anticipates solid demand in upcoming quarters as more customers turn to Broadcom’s XPU chips and connectivity solutions.
5. Amazon
AI is already enhancing profitability for e-commerce and cloud computing leader Amazon (AMZN -0.26%). The technology is integrated throughout its e-commerce operations to boost efficiency and customer service. In its cloud division, Amazon Web Services (AWS), it provides an extensive range of AI solutions, aiding AWS in achieving a $115 billion annual revenue run rate last year.
As the preeminent cloud service provider, Amazon has access to a vast pool of potential AI clients. AWS offers premium Nvidia chips and its own in-house designed chips for budget-conscious customers and provides an entirely managed service called Amazon Bedrock to help customers adapt popular LLMs for their needs. With AI market expansion on the horizon, Amazon remains well-positioned, currently trading at 31 times forward earnings estimates, a reduction from 45 last year, making it an attractive buy.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Nvidia, and Palantir Technologies. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
