The AI bloodbath has rattled Wall Street. Artificial intelligence (AI) stocks suffered for a while, and last week, major indexes witnessed their worst decline in years. Investors have been rotating out of riskier assets as fears grow over the future of AI stocks in the wake of the recent midterm election results that saw Democrats seize power in both the Senate and House.
However, AI stocks still have a lot of potential as demand continues to exceed supply. Tech stocks have been primarily responsible for the broader market rally over the past few years as big tech giants continue to explore the market with massive investments.
Given this scenario, it would be ideal to invest in AI stocks such as Arista Networks, Inc.ANET, FabrinetFN, Analog Devices, Inc.ADI and Advanced Micro DevicesAMD.
AI Stocks Suffer
The Nasdaq suffered its worst single-day decline in 19 months on Thursday, as the tech-heavy index plunged 5.5% to end at 24,315 points and entered correction territory. The S&P 500 also suffered its biggest single-day decline in over six years.
The declines came a day after Democrats won the U.S. midterm elections. Concerns have grown that their win would lead to slow data center spending, which several tech companies have been focusing on.
Massive spending on data centers is a result of the higher AI demand, which has also been responsible for the market rally. A major part of the overall tech sphere is today centered on AI.
Also, investor sentiment has partly been hurt by the revelation of NVIDIA CorporationNVDA CEO Jensen Heung's affair with a Chinese woman. NVIDIA has been at the heart of the AI boom that started a few years ago. The semiconductor giant's shares declined following the revelation.
However, AI stocks still have a lot of potential. Major cloud providers have been pumping in hundreds of billions of dollars into data centers and networking equipment. Demand for advanced computing capacity is still higher than available supply, which gives opportunities to companies supplying critical hardware and infrastructure.
Also, AI is fast graduating from its experimental phase to an advanced stage, with tech giants beginning to report tangible benefits from its adoption.
At the same time, the recent declines in AI stocks have helped ease the lofty market valuations, bringing forward earnings multiples to more reasonable levels. This has created potentially attractive entry points for selective long-term investors. So, it would be ideal to adopt a 'buy the dip' approach.
4 AI Stocks With Upside
Arista Networks
Arista Networks, Inc. is engaged in providing cloud networking solutions for data centers and cloud computing environments. ANET offers 10/25/40/50/100 Gigabit Ethernet switches and routers optimized for the next-generation data center networks. Arista uses multiple silicon architectures across its products. At the core of ANET's cloud networking solutions is the Linux-based Extensible Operating System, which was architected to be fully programmable and highly modular.
Arista Networks' expected earnings growth rate for the current year is 40.9%. The Zacks Consensus Estimate for current-year earnings improved 2.9% over the past 60 days. ANET currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Fabrinet
Fabrinet provides advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services to original equipment manufacturers of complex products. Offerings span process design and engineering, supply chain management, manufacturing, complex printed circuit board assembly, advanced packaging, integration, final assembly and testing. FN manufactures optical communication components, modules and sub-systems, industrial lasers, automotive components, medical devices, sensors, and customized optics and glass used both in customer programs and the merchant market. Fabrinet's business is centered on data center and communications infrastructure markets, with additional exposure to automotive, industrial and other applications.
Fabrinet's expected earnings growth rate for the current year is 40%. The Zacks Consensus Estimate for current-year earnings improved 6.3% over the past 60 days. Currently, FN has a Zacks Rank #1.
Analog Devices, Inc.
Analog Devices, Inc.is an original equipment manufacturer of semiconductor devices, specifically, analog, mixed-signal and digital signal processing integrated circuits. ADI's product line is composed of 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 the current-year earnings has improved 0.3% over the past 60 days. ADI currently has a Zacks Rank #2 (Buy).
Advanced Micro Devices
Advanced Micro Devices has strengthened its position in the semiconductor market on the back of its evolution as an enterprise-focused company from a pure-bred consumer-PC chip provider. AMD has emerged as a strong challenger to NVIDIA's dominance in the graphics processing unit or GPU market based on its Radeon chips.
AMD's processors are primarily powered by the company's proprietary Zen CPU and Vega GPU architectures. Advanced Micro Devices generated revenues of $22.68 billion in 2023.
Advanced Micro Devices' expected earnings growth rate for the current year is 82.5%. The Zacks Consensus Estimate for the current-year earnings has improved 1.6% over the past 60 days. AMD currently carries a Zacks Rank #2.
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Analog Devices, Inc. (ADI) : Free Stock Analysis Report
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Fabrinet (FN) : Free Stock Analysis Report
Arista Networks, Inc. (ANET) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
