It's been an exciting few years in the tech world. The advent of Artificial Intelligence (AI) has fueled growth in various companies and raised long-term expectations, leading to a surge in share prices in top AI stocks and new highs in tech-heavy stocks. NasdaqA combination index.
However, the stocks started in 2025 in some moving areas. Investors are worried about what the Fed's interest rate policy might look like this year amid fears of a return to inflation. In addition, the 10-year Treasury rate, which gives interest to consumers and companies paying off debt, continued to rise.
Will the Nasdaq be headed for a correction? Since December, the index has fallen to 5% below its all-time high. Remember, no one can predict how much (or when) the stock market will go up or down.
More importantly, stock market declines are common and represent great opportunities to buy high-quality stocks at better prices.
Consider buying these top three AI stocks if they continue to decline: Palantir Technologies(NASDAQ: PLTR), Advanced Micro Devices(NASDAQ: AMD)again CrowdStrike Holdings stock price(NASDAQ: CRWD).
Jake Lerch (Palantir Technologies): I've made no secret of how much I like Palantir stockthanks to its place in the AI Revolution. However, now that its shares have rallied more than 300% in the past 12 months, I can't go without discussing the stock's rich valuation.
They are several ways to measure stock valueincluding Price-to-earnings ratio (P/E), price-to-sales ratio (P/S) and PEG ratio.
For fast-growing companies like Palantir, I prefer the P/S ratio and the PEG ratio.
Let's examine Palantir's P/S ratio first, and this time, I'm using trailing-12-month (TTM) sales.
As of this writing, Palantir's P/S ratio stands at 61 times. That's down from about 75 times that high, but it's still astronomically high. By comparison, Nvidiathe king of AI stocks and a stock that has grown more than 2,000% in the past five years, has a P/S ratio of 30 times. Step away from the AI hot spot, and many stocks boast P/S ratios in the low single digits.
In other words, Palantir's stock is expensive based on the P/S ratio alone.
However, the P/S ratio does not account for Palantir's rapid growth.
The PEG ratio, which divides the price-to-earnings ratio by the average growth rate, does just that.
PLTR PEG Ratio data by YCharts
Here, you can see Palantir's PEG ratio stop at 1.45 from this text. That's down from a high of 1.77, and, moreover, it shows that Palantir stock isn't as expensive as its P/S ratio seems to indicate. Still, the stock's value remains high, even by PEG ratio levels.
As a general rulePEG ratios between 0 and 1 represent undervalued companies; a PEG of 1 means a reasonably priced stock; and PEG ratios above 1 represent overvalued stocks.
Obviously, if Palantir's shares were to decline in value (all else remaining equal), its PEG ratio would approach 1. — which can represent an excellent opportunity for long-term investors.
Is Healy(Advanced Small Devices): Fortunately, investors looking to buy discounted AI stock may have that opportunity with AMD. The stock has lost nearly half of its value since last March amid competition from Nvidia in the AI accelerator market and challenges within certain parts of its business.
Apart from the customer part of the business (they make chips for PCs), the data center part of AMD, which designs AI accelerators, has succeeded despite competition from Nvidia.
Revenue in the first quarter of 2024 rose 107% in the data center segment. That allowed AMD's $18 billion in company revenue to grow 10% annually during that time.
So, why the sluggish performance overall? Unfortunately, AMD's gaming and embedded divisions are to blame for its lackluster growth. Those segments saw revenue decline significantly in the first nine months of 2024, gaming revenue fell 58% and embedded revenue fell 38% year-over-year in the first nine months of the year.
In the sports section, Microsoft again Sony Cut the channel list as AMD prepares to release the next generation of Radeon GPUs. Also, the move by clients to standardize their inventory led to a struggle in the embedded segment.
However, a change in these categories may happen soon. The new Radeon GPU should revive its gaming business, and AMD said its embedded business will decline in Q1 2024. These factors should reverse the decline in these segments.
In addition, the prices look very attractive. While its trailing P/E ratio is still above 100, AMD trades at just 24 earnings. Additionally, AMD's price-to-book ratio is just over 3, while Nvidia's price-to-book multiple is just over 50. Such differences may prompt investors to pick AMD stock despite Nvidia's technological lead.
Finally, AMD is not immune to the struggle. Still, given that growth prospects are bright for all of its segments, investors may want to consider buying AMD stock while it's trading at a discount.
Justin Pope (CrowdStrike Holdings): AI has proven a game changer in cybersecurity. Companies like CrowdStrike have developed technology that uses machine learning and AI to detect potential threats to computer systems. CrowdStrike has positioned itself as a leader in this new generation of security companies. It has received numerous industry awards, which translates into significant (and profitable) revenue growth. Today, CrowdStrike's customer base includes 300 Fortune 500 companies, an impressive feat in a highly competitive field.
The company focuses on endpoint security, but has gradually expanded its platform. About two-thirds of CrowdStrike's customers use at least five product modules. The business generated $3.7 billion in revenue over the past 12 months, including 28% year-over-year growth in its most recent quarter. I think it's reasonable to expect years of double-digit revenue growth ahead. Management believes that the total addressable market for CrowdStrike will grow to $250 billion by 2029.
Startup companies like CrowdStrike don't always have clear lines of competition. CrowdStrike was tested in a big way in July 2024 when a faulty update caused an IT outage on millions of devices around the world. The company received a large amount of negative attention, and many feared that it would open the door for competitors to steal customers.
However, CrowdStrike has held up well so far, with only minor revisions to next year's revenue estimates. It shows how well the CrowdStrike product is sticking, which bodes well for the company's ability to continue to grow its top and bottom lines over the long term. A company's strong performance is reflected in the stock, which often trades at a higher price (average sales price) than its peers. If a stock stumbles into a market downturn, investors would be wise to take advantage of the ride.
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Jake Lerch has positions in CrowdStrike and Nvidia. Justin Pope has no position in any of the stocks mentioned. Will Healy has positions in Advanced Micro Devices and CrowdStrike. The Motley Fool has positions and recommends Advanced Micro Devices, CrowdStrike, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a policy of disclosure.
Is Nasdaq Headed For A Correction? 3 Best AI Stocks to Buy When Prices Fall. was first published by The Motley Fool
