While some investors may disagree, the recent decline in prices of some artificial intelligence (AI) stocks could be the beginning of an opportunity, not the end. As many of these stocks experience their own mini bear markets, their lofty valuations have fallen to more reasonable levels.
And although their stock prices may fall, these companies continue to create and/or develop advances that should allow them to better capitalize on AI. Instead of running away, investors may want to think about profiting from the falling prices of these stocks.
Here are three AI stocks in particular to take a closer look at this month.
1. Nvidia
Of course, Nvidia (NASDAQ:NVDA) is probably an overvalued investment at the moment. The stock posted huge gains as it quickly became the dominant AI chip company, giving it a valuation too expensive to touch. Or is it?
Nvidia is currently trading at a price-to-earnings (P/E) ratio of around 74. That sounds high until you remember the triple-digit revenue growth for fiscal 2024 (ending January 31). This resulted in a 581% increase in net income! Although this level is unsustainable, Nvidia has a price-to-earnings-growth (PEG) ratio of just 0.1!
Additionally, a forward P/E ratio of 35 confirms that the chip giant has become a bigger bargain than many might expect.
In fact, its competitors in the chip industry have themselves developed competing AI chips. Therefore, investors should not expect sustained triple-digit growth. Nonetheless, Nvidia claims at least 80% of the AI chip market. As competitors develop AI chips, Nvidia will likely retain most of its customers because its recently announced Blackwell platform runs large language models at up to 25 times lower cost and energy consumption.
Because investors can ultimately purchase this dominance at a lower-than-expected valuation, Nvidia presents an excellent opportunity for investors who didn’t buy earlier.
2.Tesla
While Nvidia is probably overvalued, Tesla (NASDAQ:TSLA) Maybe it’s a little under-hyped at the moment. Falling electric vehicle (EV) sales and uncertainty over Tesla’s upcoming lower-priced cars appeared to have investors soured on the stock. The share price has fallen almost 55% since its all-time high in late 2022.
Additionally, the Q1 2024 earnings report confirmed issues in the electric vehicle market as deliveries fell 9%. That meant quarterly revenue fell 9% annually to $21 billion. Additionally, operating expenses rose 37% during the period, causing quarterly net income to decline 55% year-over-year to $1.1 billion.
Still, the stock’s P/E ratio is near a record low of 43. Additionally, Tesla’s plan to launch a lower-cost electric vehicle in the second half of 2025 reassured investors who saw it as necessary to spur demand for its AI-powered robotaxi platform, which was reportedly announced on August 8 will come onto the market.
The robotaxi is also the product that Cathie Wood’s Ark Invest believes will become its largest source of revenue, driving the self-driving car inventory to $2,000 per share by 2027, according to Ark Invest’s estimates. That’s quite a change considering electric vehicle sales accounted for 82% of revenue in the first quarter. But even if the stock price is closer to Ark Invest’s bear case scenario of $1,400 per share in 2027, investors will likely be glad they bought in May.
3.Microsoft
Investors largely understand this Microsoft (NASDAQ:MSFT) as one of the three largest cloud companies in the world. Now the company is gaining increasing recognition as a leader in AI.
Thanks to investor enthusiasm for its AI efforts, Microsoft shares have risen nearly 26% over the last year. Additionally, these increases have pushed the P/E ratio to 33, which is admittedly at the higher end of this stock’s range. Still, the P/E decline could be due to the fact that revenue in the third quarter of fiscal 2024 (ending March 31) was $62 billion, up 17% year over year. Additionally, net income increased 20% from $22 billion.
Additionally, AI is driving much of this growth as the company evolves into a full-fledged AI company. Like all major cloud platforms, Azure supports numerous AI features, including the ability to create your own AI tools.
The search engine Bing benefits from a partnership with OpenAI, the developer of the ChatGPT platform. Because of this alliance, investors are now questioning Google’s parent company alphabet‘s dominance in search.
Such competitive advantages have made Microsoft a world-class AI company and will continue to do so. Considering the company’s $80 billion in liquidity, it should have the technology and financial resources it needs to remain an industry leader.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, Nvidia and Tesla. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
“3 Artificial Intelligence (AI) Stocks to Buy in May” was originally published by The Motley Fool