Investors have enjoyed stellar returns across much of the technology sector since the artificial intelligence (AI) boom took off in late 2022. However, recent weeks have been an important reminder about how volatile tech stocks can be. Fears over how AI might impact software and other types of tech products have pummeled some market darlings.
But stocks will tumble from time to time, for one reason or another. While you cannot dismiss how AI may impact any business in this rapidly evolving world, the five stocks below wouldn't be as cheap as they are now without some adversity.
The market may have forgotten just how entrenched these world-class businesses are. I wouldn't be surprised to see all five eventually rebound and reach new highs. They could be the best stocks to invest your next $5,000 in.
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1. Nvidia trades 12.4% below its high
One of the top AI stocks, Nvidia (NVDA 1.53%) dominates the data center GPU market, where clusters of thousands of Nvidia GPUs enable the training and operation of AI models. Despite the immense opportunity in AI chips, no company has mounted a meaningful challenge to Nvidia to date. Nvidia will likely begin shipping Rubin this year, its next AI chip architecture. It was designed with AI inference in mind, which is becoming increasingly important to real-world AI applications.
NASDAQ: NVDA
Key Data Points
Nvidia is AI's fundamental cog until proven otherwise, so the business is likely to continue thriving for as long as companies continue investing in data centers. The stock trades at 25 times forward earnings estimates, leaving plenty of room for investment returns if Nvidia comes anywhere near Wall Street's estimates, which call for 46% annualized earnings growth over multiple years.
2. Broadcom trades 23% below its high
Another AI chip leader, Broadcom (AVGO 1.63%), specializes in networking chips that help AI clusters in data centers communicate and process large amounts of data quickly. However, Broadcom is a bit more diversified. Its infrastructure software solutions account for over a third of the business, and Broadcom has also struck some blockbuster deals with AI companies for custom chips.
Broadcom's infrastructure software segment includes mainframe, network, and security solutions that appear far less vulnerable to AI disruption. Therefore, the recent sell-off seems misguided. Analysts estimate that Broadcom will grow earnings by 35% annually over the long term, making shares a no-brainer at 32 times forward earnings estimates.
3. Meta Platforms trades 19% below its high
AI could certainly impact how people create content. But for Meta Platforms (META 2.52%), that could mean more opportunity than danger. AI is enabling automation and innovation throughout Meta's core digital ads businesses, which, if anything, justifies the company's aggressive AI spending. It's probably seeing more return on those investments than most companies right now.
NASDAQ: META
Key Data Points
Remarkably, Meta's family of apps continues to grow, with daily active users increasing by 7% year over year to 3.58 billion in the fourth quarter. Analysts currently estimate that Meta will grow its earnings by an average of 19% annually over the next three to five years, making the stock arguably a bargain at just over 21 times forward earnings estimates.
4. ServiceNow trades 53% below its high
The software sell-off has hit ServiceNow (NOW 2.46%) square on the chin. But again, it seems the market has this wrong. ServiceNow's cloud-based software automates various processes and workflows throughout enterprises. Since these automations are often crucial to keeping companies running smoothly, it seems unlikely that many would risk replacing something that already performs an important job very well.
Instead, AI is likely an opportunity, as the company is integrating AI capabilities to enhance its existing offerings. A better product powered by AI would likely make ServiceNow's sticky business even stickier. Analysts see ServiceNow growing earnings by 24% annually over the next three to five years. Shares trade at just 26 times forward earnings estimates, so consider buying them here to hold for the long term.
5. Microsoft trades 26% below its high
Last up is Microsoft (MSFT 0.73%), which finds itself in an odd spot due to its reliance on OpenAI, which is facing increasing competitive pressure from Anthropic and other AI companies. Microsoft owns 27% of OpenAI, and OpenAI accounts for roughly $281 billion of the remaining performance obligations in Azure's cloud services backlog. It's fair that OpenAI's rising risks would weigh on Microsoft as they have.
NASDAQ: MSFT
Key Data Points
That said, OpenAI remains the leading AI model to date, and Microsoft is reportedly hedging its OpenAI exposure by developing its own AI. At this point, the stock is tough to pass on as it trades at under 24 times forward earnings estimates, especially with analysts calling for 16% annualized earnings growth over the next three to five years.
