Two AI Stocks That Declined During the Nasdaq Correction: Is It Time to Buy the Dip?

Current State of Nasdaq Composite Stocks

The Nasdaq Composite index has regained some stability recently; however, it remains in correction territory following a significant sell-off. This downturn is attributed to multiple factors, including a drop in consumer sentiment, ongoing disputes surrounding tariffs, and worries regarding stretched valuations, particularly after a strong performance of tech stocks throughout 2023 and 2024.

With the index falling by over 10%, many individual stocks in the Nasdaq have faced even sharper declines, presenting potential opportunities for investors to buy at lower prices. In this article, we’ll discuss two artificial intelligence (AI) focused companies that have seen price drops during this correction and may be worth considering for investment.

1. AppLovin: A Rising Player in Ad Tech

AppLovin (APP) has not captured as much attention compared to other AI stocks, yet it has shown remarkable performance. Despite experiencing a recent decline, AppLovin’s stock has skyrocketed by an astounding 2,870% since the beginning of 2023, even outperforming industry leader Nvidia.

The company’s transformation from a mobile game developer to a prominent ad tech firm has played a crucial role in its success. Utilizing its experience in mobile gaming, AppLovin has built an AI-driven ad tech platform, initially catering to mobile game advertisers, before expanding into e-commerce and targeting the connected TV (CTV) market.

In its move to further integrate AI, AppLovin plans to launch a self-service dashboard powered by AI agents. Recently, the company reported remarkable growth, with advertising revenue increasing by 75% in 2024, reaching $3.2 billion. By the end of that year, total revenue hit $4.7 billion, with net income surging 343% to $1.58 billion.

In a strategic shift, AppLovin is selling its mobile games division to concentrate on its advertising business. Following a peak shortly after its fourth-quarter earnings report, AppLovin’s stock has declined about 40% from that high. While the stock is still priced at a premium compared to traditional valuation metrics, its current price-to-earnings ratio stands at 69, suggesting a better valuation now. Given that advertising suffers early during economic downturns, this explains the stock’s downward trend. However, its technological edge in ad tech hints at a promising long-term outlook for smart investors.

2. Arm Holdings: A Leader in Semiconductor Innovation

Arm Holdings (ARM) stands out in the semiconductor industry. Unlike traditional chip manufacturers, Arm doesn’t sell chips directly. Instead, it licenses its instruction set architectures to various customers, generating revenue from royalties when those chips are sold.

This unique business model protects Arm against recession effects better than many peers, as there is often a gap of two to three years between licensing sales and royalty revenue collection. Remarkably, around half of Arm’s royalty revenue stems from products launched a decade ago, ensuring a more stable revenue flow.

Demand for AI products is strong, and Arm is gaining market share across various semiconductor segments, including cloud computing and consumer electronics. Although it trades at a premium due to its advantages in power-efficient CPU architecture, it continues to maintain impressive growth.

Recently, Arm’s stock has declined by 21% in the correction period and down 31% since February 5, following an earnings spike. Given the resilience of Arm’s business model, investors may find reassurance amid the current downturn. The substantial market opportunity in AI further enhances the potential for growth, making Arm an attractive stock to consider during this correction.