This week presents an opportunity for investors to get into AI stocks at a slight discount. NVIDIA (NASDAQ:NVDA) showed signs of slipping because of trade restrictions. The company is developing a flagship version of its AI chips, but specifically for Chinese markets. These chips are anticipated to be hit with US trade restrictions.
Other AI companies–such as CrowdStrike (NASDAQ:CRWD)–have contributed to slipping markets for this week as a whole. The company intended to release an update to its “vulnerability-protection” software. However, this was defective on Windows OS devices, causing them to crash. Some companies are still reeling from this hit. Delta (NYSE:DAL) is still facing IT issues that have caused hundreds of flights this week to be delayed or canceled.
Now is the time for investors to buy these AI-stocks on the dip before they continue to rise.
TSMC (TSM)
TSMC (NYSE: TSM) is one of the world’s leading chip manufacturers, known for producing around 90% of all semiconductors worldwide. Some of the company’s biggest clients include Nvidia and Apple.
In the Q2 earnings call, the company surprised with a revenue of $20.58 billion, surpassing investor expectations by an impressive $491.61 million. The company still has room to grow, supported by the company’s 33.80% YOY increase in revenue. TSMC is trading at a fair value compared to the sector, with a forward P/E ratio of 25.45.
The primary catalyst for TSMC’s growth is the high demand for AI and smartphone chips. The recent AI boom is set to significantly increase the demand for advanced semiconductor, with more capable services requiring stronger compute power. Additionally, TSMC plans to substantially invest in R&D in order to ensure the company remains the preferred supplier for tech giants. Given its leading role in the chip market and strong growth prospects, TSMC is one of the compelling AI stocks to buy on the dip.
Arm (ARM)
Arm (NASDAQ: ARM) is a UK-based technology company known for its development of AI chips, smartphone processors, and GPUs. Since its IPO in September 2023, Arm has solidified its position in the gaming, data center, and automotive markets.
Financially, Arm Holdings had an outstanding first half of 2024, with its stock price soaring by 118%. In its latest quarterly earnings report, Arm Holdings Inc. surprised with a revenue of $928 million, surpassing investor expectations by $49.25 million. The company’s year-over-year growth rate is 20.68%, significantly higher than the sector median of 3.33%. Additionally, the company’s levered FCF Margin TTM of 40.92% demonstrates strong profitability and supports its current valuation.
Arm Holdings Inc. recently transitioned from the use of Armv8 to Armv9 architecture architecture, significantly boosting the company’s royalty revenues. Armv9’s architecture enhances performance and energy efficiency, making it essential for AI applications in data centers. Additionally, the company recently expanded into the production of automotive AI chips, further enhancing its growth prospects. These factors make Arm Holdings as a top choice for investors looking for AI stocks to buy on the dip.
Arista Networks (ANET)
Arista Networks (NYSE: ANET) is a computer networking company specializing in network switches for big data centers. The company has encouraging future projections, making it an intriguing stock.
Continuing its steady rise, Arista boasted a revenue of $1.57 billion for Q1 2024, beating expectations by $23.62 million paired with a 16.28% YOY increase. The company shows positive market sentiment momentum with a 3M price performance of 39.42%. Compared to the sector median 8.49%, ANET displays strong momentum within the AI industry.
As major tech companies update their hardware to manage the large amount of resources necessary for AI, the need for networking hardware increases. Specifically, cloud computing and 5G wireless devices contribute to this growing demand.
ANET is the provider of networking hardware for cloud computing and holds a top market position in the industry. ANET also has a strong free cash flow which management uses intelligently on investments and share buybacks, allowing the company to grow with financial stability. Analysts also predict a robust earnings growth of 52% over the next few years, making it one of the AI stocks to look into buying on the dip.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Matthew Rodrigues held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
