As of the closing bell on May 20, the three major stock market indexes -- S&P 500, Nasdaq Composite, and Dow Jones Industrial Average -- are all essentially at break-even returns on the year. Under normal circumstances, mundane returns like these might have investors worried.
But 2025 has been anything but normal. Over the last several months, financial news has been packed with storylines featuring the potential for a recession, mixed economic indicators, ongoing geopolitical tensions in Europe and the Middle East, and (of course!) tariffs.
At one point, each of the major indexes had dropped by double digit percentage points. The Nasdaq fared worst of all, declining by 21% at its low point. While the Nasdaq has bounced back considerably in recent weeks, some technology stocks are still trading for lower-than-usual valuations.
Let's explore some of the biggest movers and shakers in the Nasdaq this year. From there, I'll take a look at valuation trends to help suggest if now is a good opportunity to buy the dip in tech stocks.
It's been a rough year for the technology sector
The chart below illustrates price returns for a number of different technology-themed investments, particularly in the artificial intelligence (AI) sector.
Shares of the Invesco QQQ ETF have gained roughly 2% on the year. This index fund tracks the Nasdaq-100 -- providing investors with exposure to a number of different AI stocks. Given this diversification, it's not surprising to see the Invesco QQQ outperform a number of individual volatile growth stocks this year.
This leads me to the "Magnificent Seven." For much of the last two years, it was pretty hard to lose money investing in Microsoft, Nvidia (NVDA -1.02%), Amazon, Alphabet, Meta Platforms, Apple, or Tesla. While timing mattered to some extent, these companies have largely become the de facto buys for AI investors. Yet this year, their respective performances have been far less predictable.
Lastly, there's Palantir Technologies. Despite a brief dip back in February, shares of Palantir have soared to new highs -- making it one of the biggest outliers among popular AI stocks.
Image source: Getty Images.
These AI stocks look too good to pass up right now
An important thing to understand is that just because a stock might be outperforming its peers or the broader industry doesn't make it a smart buy. While I am bullish on Palantir, the company's valuation is stretched right now. In addition, even though shares of Tesla may appear deflated, the stock has been experiencing a lot of momentum as of late -- despite the company's financial picture looking pretty questionable.
One pocket of the AI realm that has remained hot despite uncertainties in the macroeconomic environment is infrastructure. Companies such as Alphabet, Amazon, Microsoft, Amazon, Meta Platforms, and Oracle are spending hundreds of billions of dollars building data centers and outfitting these structures with the newest chip architectures. If I were considering AI stocks right now, I'd be looking at what companies stand to capture this infrastructure spend.
Some of the more obvious names that come to mind are Nvidia, Advanced Micro Devices, Broadcom, and Taiwan Semiconductor Manufacturing. Per the graphic above, each of these stocks is hovering around break-even levels on the year (essentially on par with the Nasdaq-100).
NVDA PE Ratio (Forward) data by YCharts
If you look at the forward earnings multiples for each of these companies, there is a clear pattern of compression throughout the year. However, more recent trends illustrate some resiliency -- as the forward price-to-earnings (P/E) multiples are beginning to climb ever so slightly.
To me, this signals that some investors are buying the dip -- albeit cautiously. While it may take some time for these companies to begin showing accelerated growth again, secular themes fueling their respective areas of expertise in the AI market (i.e., hardware) suggest the long-run bull thesis holds up.
Should you buy AI stocks right now?
Given how volatile the technology sector can be, it's important for investors to consider valuation before buying a growth stock. The key is to look for value and not chase momentum plays. Given the ideas explored in this piece, I do think now is a good opportunity to buy beaten-down AI stocks -- particularly in the semiconductor space.
