Nasdaq Decline: 2 AI Stocks Dropping 26% and 46% Present Buying Opportunities Before Potential Surge
The Nasdaq Composite (^IXIC -2.70%) is currently experiencing a market correction, which means it’s more than 10% lower than its recent peak. Despite this decline, many analysts on Wall Street believe it’s a good time to invest in certain stocks, notably Nvidia (NVDA -1.51%) and AppLovin (APP 4.03%).
- Nvidia’s stock is currently about 26% lower than its peak. Analysts have a median target price of $175 per share, indicating a potential upside of 60% from its current price of $109.
- AppLovin’s share price is down by 46% from its peak, with a median target price of $550 per share signifying a potential upside of 104% from the current price of $270.
Let’s take a closer look at both Nvidia and AppLovin for better insights.
Nvidia: Potential for Significant Growth
Nvidia has played a pivotal role in the technology market since it invented the GPU in 1999, fundamentally changing computer graphics and accelerating complex workloads, especially in AI domains. Currently, Nvidia commands an impressive 95% market share in AI accelerators, and analysts expect this dominance to continue well into the next decade.
In its latest quarter, Nvidia reported outstanding financial results, exceeding analysts’ expectations. Revenue skyrocketed by 78% to reach $39 billion, propelled by increased demand in its data center segment largely due to AI infrastructure needs. Non-GAAP earnings rose 71% to $0.89 per diluted share.
Despite its successful quarter, Nvidia’s stock took a hit after some reports indicated that a Chinese start-up, DeepSeek, trained advanced language models at a significantly lower cost than U.S. firms. This led to concerns about possible reduced demand for Nvidia’s GPUs. However, projections from major cloud service firms helped alleviate some of this anxiety. CEO Jensen Huang has also indicated that the need for AI computing power will be substantially greater than initially anticipated.
Wall Street predicts that Nvidia’s earnings will grow by 51% in fiscal 2026. With its current valuation at 38 times earnings, many believe it appears undervalued, especially compared to a prior valuation of 58 times earnings just before the generative AI boom began.
AppLovin: Strong Growth Potential Amid Challenges
AppLovin specializes in adtech software that helps mobile developers promote and monetize their apps. The company has expanded its offerings to include solutions for connected TV and is also working on tools for e-commerce brands. Its advanced recommendation engine, Axon, leverages machine learning to target advertisements effectively.
In its latest financial report, AppLovin saw a 44% increase in revenue, reaching $1.4 billion, while GAAP net income surged 253% to $0.49 per diluted share. CFO Matt Stumpf noted that the advertising business particularly benefited mobile gaming partners, with positive feedback from e-commerce advertisers during the busy holiday season.
However, AppLovin has recently faced scrutiny from short-sellers, who have raised concerns regarding data tracking and potential app store policy violations. These allegations have led to increased market skepticism. The CEO, Adam Foroughi, has strongly rebutted the claims, arguing that they are fraught with inaccuracies and highlight the company’s successful revenue growth in the e-commerce segment.
As of now, Wall Street forecasts a 44% growth in earnings for AppLovin in 2025. The current valuation, at 58 times earnings, seems reasonable given these growth expectations. Investors willing to take on the associated risks may find value in acquiring shares of AppLovin at this time.
