AI Stocks Face Headwinds, But Opportunities Remain to Buy

Artificial intelligence (AI) stocks emerged as market leaders over the past two years, driving the S&P 500 and Nasdaq to significant gains. This rise is attributed to the technology’s potential to enhance company operations and boost earnings. Many companies have already harnessed AI’s capabilities, indicating it may revolutionize industries.

However, in recent days, AI stocks have experienced a downturn. Concerns about the broader economic climate, influenced by new government policies and President Donald Trump’s tariffs on major trading partners like Canada, Mexico, and China, have impacted these stocks.

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The tariffs pose a challenge as they may increase costs for companies that rely on manufacturing outside the U.S. Rising prices could lead to inflation, directly impacting consumer spending and, consequently, company revenues.

As a result, the tech-heavy Nasdaq has fallen over 7% in the last fortnight, primarily due to declines in AI stocks. Nevertheless, it is crucial to remember that current challenges are not enduring and do not alter the long-term growth trajectories of many AI firms. Thus, this is an opportune moment to consider purchasing shares. Let’s explore two AI stocks worth investing in during this market pullback.

Image source: Getty Images.

1. Amazon

Amazon (NASDAQ: AMZN) has successfully integrated AI into its high-growth sectors: e-commerce and cloud computing. The company employs AI technology to boost efficiency and enhance customer interactions on its platform. For instance, AI optimizes delivery routes, saving both time and costs, thus appealing to customer preferences for speedy service.

Additionally, Amazon Web Services (AWS) has emerged as a significant revenue stream through AI innovations. As of the last quarter, AWS boasts a robust annual revenue run rate of $115 billion.

Leading the company’s profitability, AWS offers a range of AI solutions—from premium Nvidia chips to its proprietary lower-cost alternatives. The massive cloud provider leverages its existing customer base to introduce new AI offerings effectively.

I also appreciate Amazon for its consistent earnings growth and its efforts to restructure costs, which are likely to enhance revenue moving forward. Over the past month, Amazon’s shares have dipped more than 10%, now trading at around 32 times forward earnings estimates, down from over 45 times late last year. Given these factors, the stock presents a compelling buy-and-hold opportunity at current prices.

2. Palantir Technologies

Recently, Palantir Technologies (NASDAQ: PLTR) encountered added challenges due to proposed Pentagon budget cuts, which could impact one of its largest customer bases. The Pentagon’s plans to reduce spending by 8% annually over the next five years raised concerns for investors.

However, the reaction to these developments may be overstated. The Trump administration is emphasizing operational efficiency, which aligns with the capabilities of Palantir’s AI software that aids customers in optimizing data utilization. This software enhances operational efficiency and lowers costs, potentially leading to increased contract opportunities for Palantir.

Moreover, Palantir’s commercial sector has shown impressive growth, with recent quarters highlighting double-digit revenue gains and rising contract values. In its latest report, the company secured over $800 million in U.S. commercial contracts, marking a record and a 134% increase year-over-year. This trend suggests that commercial clients could drive significant growth for Palantir in the coming years.

The success with commercial contracts, alongside consistent growth in the government sector, has substantially boosted Palantir’s earnings. Its recent invitation to join the S&P 500 underscores this momentum, especially given a remarkable 700% increase in the stock price over the past three years. Nonetheless, the recent 27% decline in stock value adjusted its valuation significantly. Presently, the forward price/earnings-to-growth (PEG) ratio is below 1, indicating that the stock might no longer be overvalued. Therefore, growth investors looking for a leading AI stock should consider acquiring shares at this time.

An Attractive Opportunity Awaits

Do you feel you’ve missed out on investing in top-performing stocks? Here’s your chance to reconsider.

Occasionally, our expert analysts issue a strong “Double Down” Stock recommendation for companies poised for growth. If you’re anxious about missing investment opportunities, now represents an ideal moment to act before it’s too late. The statistics underline the potential:

• Nvidia: An investment of $1,000 from our double down in 2009 would now be worth $292,207!*
• Apple: A $1,000 investment from our double down in 2008 would have grown to $45,326!*
• Netflix: If you invested $1,000 from our double down in 2004, it would have reached $480,568!*

Currently, we are issuing “Double Down” alerts for three outstanding companies, marking a unique opportunity that may not come around again soon.

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*Stock Advisor returns as of March 3, 2025

John Mackey, former CEO of Whole Foods Market, which is owned by Amazon, is a member of The Motley Fool’s board. Adria Cimino holds positions in Amazon. The Motley Fool has positions in and recommends Amazon and Palantir Technologies. The Motley Fool’s disclosure policy is available for review.

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