September Syndrome Strikes Again: Is it Time to Buy the Dip in AI Stocks?
The infamous "September syndrome" has returned to haunt Wall Street, with the U.S. stock market experiencing a tumultuous start to the month. The Dow, S&P 500, and Nasdaq Composite all witnessed substantial drops in the first four trading days, falling 2.9%, 4.2%, and 5.8%, respectively. However, amidst the recent market meltdown, a lucrative opportunity presents itself for investors – buying the dip in AI-centric stocks. Despite the recent volatility, the generative AI ecosystem remains robust, with no significant negative news on the horizon.
Key Takeaways:
- September Syndrome: The stock market historically underperforms in September, and this year is no exception.
- AI Opportunities: The recent market dip presents a prime opportunity to snag AI-focused stocks at a discount.
- Strong Growth: The generative AI sector boasts strong growth potential, with no major negative developments impacting the ecosystem.
- Buy the Dip: Historically, buying the dip in AI stocks has proven profitable, making this a potentially opportunistic moment.
Is Recession Nearby or a Knee-Jerk Expression?
While the recent market slump might raise concerns about an impending recession, a closer look at economic data paints a different picture. Although the U.S. GDP grew at a modest 1.4% in the first quarter of 2024, the second quarter saw a rebound to 3%, with the Atlanta Fed GDPNow projecting a 2.1% growth rate for the third quarter.
Some key economic indicators have shown weakness, which the Federal Reserve was actually waiting for, particularly in the labor market, coupled with a gradual decline in inflation. This was expected to trigger a rate-cut regime.
Ultimately, the current AI market turmoil might be attributed to profit-taking by institutional investors. The stock market is inherently cyclical, with bulls driving prices up and bears waiting for strategic moments to book profits. This recent dip could be a prime example of such a scenario.
Three AI-Focused Stocks with Significant Price Upside
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Taiwan Semiconductor has emerged as a global frontrunner in the AI frenzy. As the largest manufacturer of AI-based chipsets, TSM supplies the world’s leading developers, including NVIDIA Corp., Advanced Micro Devices Inc. (AMD), and Intel Corp. (INTC). TSM’s continued focus on ramping up production for 3nm chips and developing 2nm technology further strengthens its position in the market.
Solid Earnings Estimate Revisions for TSM Stock
TSM’s projected revenue and earnings growth for the current year are estimated at 23.6% and 24.5%, respectively. Moreover, the Zacks Consensus Estimate for earnings has seen positive revisions in the last 30 days for the current quarter, current year, and the next year, indicating a bullish outlook for the company.
Huge Price Upside Potential for TSM Shares
TSM’s stock price has surged 50.8% year-to-date, despite experiencing a 4.7% decline in the past month. Brokerage firms have set an average price target that represents a 25.1% potential increase from the last closing price of $156.82, making it an attractive acquisition for potential growth.
Micron Technology Inc. (MU)
Micron Technology, a major producer of memory chips used in NVIDIA’s GPUs, benefits from the booming demand for high bandwidth memory chips fueled by the growth of AI applications. MU’s recent performance reflects improved market conditions, strong sales execution, and robust growth across multiple business units.
Strong Earnings Estimate Revisions for MU Stock
MU’s projected revenue and earnings growth for the current year are expected to be a staggering 57% and over 100%, respectively. The Zacks Consensus Estimate for earnings has improved over the last 60 days for the current quarter, current year, and next year, underscoring the company’s potential.
Tremendous Price Upside Potential for MU Shares
Micron Technology’s stock price has witnessed a modest 1.3% year-to-date increase, but has fallen 6.2% in the past month. Despite the recent decline, brokerage firms have set a short-term average price target representing a whopping 80% potential increase from the last closing price of $86.38.
NetApp Inc. (NTAP)
NetApp’s continued success is attributed to the strong demand for its all-flash and cloud storage portfolio. This is reflected in its all-Flash Array Business, which saw an annualized revenue run rate of $3.6 billion in the fourth quarter of 2024, marking a 17% year-over-year increase.
NetApp’s expertise in addressing critical customer needs, including AI, business analytics, cloud transitions, data security, and application modernization, is expected to drive further expansion. NTAP’s enterprise storage products are poised to empower users to enhance workloads, encompassing traditional enterprise applications and generative AI.
Robust Earnings Estimate Revisions for NTAP Stock
Anticipated revenue and earnings growth for NTAP in the current year are projected at 4.9% and 8.8%, respectively. Positive revisions have been observed in the last 30 days for the Zacks Consensus Estimate for earnings, including the current quarter, next quarter, current year, and next year. This indicates a solid foundation for continued growth.
Attractive Price Upside Potential for NTAP Shares
The stock price of NetApp has climbed 29.6% year to date, despite a recent 4.2% decline in the past month. Brokerage firms have set an average price target that signifies a 13.3% potential increase from the last closing price of $114.18, making it an enticing investment opportunity.
Conclusion:
While September syndrome may have caused short-term market volatility, the fundamental strength of the AI sector remains intact. The recent dip presents a compelling opportunity for investors to acquire high-potential AI-focused stocks at a discounted price. The three stocks highlighted – TSM, MU, and NTAP – boast impressive growth prospects and positive earnings revisions, making them ideal candidates for a “buy the dip” strategy. As the AI market continues to evolve, these companies are poised to benefit from the sustained growth of the generative AI ecosystem. Investors can capitalize on this opportunity by carefully considering these stocks and potentially building a robust AI portfolio.
