AI Stocks Face Recent Dips Amid Economic Concerns: Key Picks

Artificial intelligence (AI) stocks shone brightly over the past two years, propelling the S&P 500 and the Nasdaq to impressive double-digit gains. The technology is seen as pivotal for many businesses as it aids in streamlining operations and boosting earnings. AI has already proven beneficial for several companies, indicating it may be a significant game-changer.

However, recent days have seen these high-flying stocks dim slightly. Concerns surrounding the broader economic climate have affected them, particularly due to new government policies and President Donald Trump’s tariffs imposed on major trading partners such as Canada, Mexico, and China.

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The tariffs raise concerns as they could potentially elevate manufacturing costs for companies based abroad. This, in turn, might ignite inflation within the U.S., negatively impacting consumer spending and ultimately lowering revenue.

As a result, the tech-heavy Nasdaq has fallen over 7% in the past two weeks, with AI stocks leading the downturn. Nevertheless, it’s crucial to recognize that these temporary challenges don’t alter the long-term growth narratives for many AI companies. Thus, there’s still an opportunity to buy rather than sell. Here are two AI stocks to consider during this market pullback.

Image source: Getty Images.

1. Amazon

Amazon (NASDAQ: AMZN) has harnessed AI to enhance its two primary high-growth sectors: e-commerce and cloud computing. The company employs AI to improve efficiency and satisfaction among customers and sellers on its platform. For instance, AI assists Amazon in determining the quickest delivery routes for packages, ultimately saving time and costs while also appealing to customers.

In addition, Amazon has made significant strides in AI through its cloud computing division, Amazon Web Services (AWS), which boasted an annual revenue run rate of $115 billion as of last year’s fourth quarter.

AWS is pivotal to Amazon’s profits, providing AI products and services ranging from Nvidia‘s premium chips to its own cost-effective solutions. The cloud provider’s enormous customer base is already ripe for adopting its latest AI innovations.

Furthermore, Amazon’s history of earnings growth and recent restructuring to optimize costs positions the company well for revenue growth in upcoming quarters. Over the last month, Amazon shares have decreased by more than 10%, and are now trading at approximately 32 times forward earnings estimates, a significant drop from over 45 times late last year. Considering these factors, the stock appears to be a promising buy-and-hold opportunity at this valuation.

2. Palantir Technologies

Recently, Palantir Technologies (NASDAQ: PLTR) encountered additional challenges. The company, which markets AI-driven software to government and commercial sectors, saw its stock drop after the Pentagon suggested an 8% annual budget cut over the next five years.

Despite these concerns, I believe the reaction to the news was overstated. The Trump administration is emphasizing operational efficiency, aligning with Palantir’s mission to enhance data utilization through its AI software. This software not only streamlines operations but also helps reduce costs, suggesting that a government focus on efficiency could lead to increased contracts for Palantir.

Moreover, Palantir’s commercial segment has shown remarkable growth, achieving double-digit revenue increases and rising contract values. The company secured over $800 million in U.S. commercial contracts recently—a 134% year-over-year increase—indicating strong demand and potential growth ahead.

Thanks to the robust commercial trends and solid double-digit growth in its government business, Palantir’s earnings have surged, leading to its inclusion in the S&P 500 last year. The stock has appreciated over 700% in the last three years. However, this significant appreciation resulted in a hefty valuation. Fortunately, Palantir’s 27% decline over the last two weeks has improved its valuation, with the forward price/earnings-to-growth ratio (PEG ratio) now below 1, indicating that the stock is no longer overvalued. Thus, this presents an excellent buying opportunity for growth investors seeking to invest in a leading AI company.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Palantir Technologies. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.