2 AI Stocks Down 48% to 70% to Buy Now and Hold for 10 Years

Artificial intelligence (AI) stocks sold off last week on fresh worries about AI spending, with the Nasdaq Composite still up about 12% year-to-date. That left Ciena (NYSE: CIEN), a supplier of optical networking, and Astera Labs (NASDAQ: ALAB), a leader in AI connectivity, trading well below their 52-week highs.

However, demand for their products continues to climb, with Ciena projecting that its addressable market will roughly double by 2029. Here's why both stocks are positioned to be long-term winners for patient investors.

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1. Ciena

Ciena builds high-speed networking equipment to move data. Even with the stock down 70% from its recent high, demand for more compute capacity is driving strong financial results for the company.

Revenue rose 37% year over year to $1.7 billion in the fiscal third quarter ended Aug. 1. Ciena also had $8.5 billion in orders waiting to be filled, and management expects that backlog to top $10 billion by the end of its fiscal year.

AI data centers need to move enormous amounts of data, creating high-growth opportunities in the data center market. Growing demand for networking infrastructure is expected to drive a sharp trajectory in revenue growth, as Ciena expects its addressable market to roughly double to $52 billion by 2029.

Ciena is the leader in photonics, the technology that carries light signals over fiber networks. Using estimates from Dell'Oro Group, Ciena says it has earned about 4.5 times as much revenue from photonics as its nearest competitor since 2022. Over the same stretch, its market share rose from 45% to 70%.

The stock trades at a forward price-to-earnings (P/E) of 27, based on fiscal 2027 earnings estimates. That looks reasonable for a company that expects its revenue to more than double by 2029, and is seeing margins rise on top of it.

The consensus analyst estimate projects earnings to grow at an annualized rate of 73% in the coming years. A slowdown in AI spending would put that outlook at risk, but in the long term, the growing use of AI could drive a lot more investment in data centers. I believe Ciena will outperform the market over the next decade.

2. Astera Labs

Astera Labs designs chips that help the processors, memory, and other components inside AI servers transmit data at high speeds. Shares closed Oct. 22 at about 48% below their 52-week high amid fears that AI spending would hit chip stocks. But management expects its newest line of Scorpio switches, which direct traffic between AI processors, to become its largest product family in the third quarter -- one quarter ahead of schedule.

In the second quarter, revenue more than doubled, rising 104% year over year to $392 million. Management guided for third-quarter revenue of $540 million to $560 million, representing a sharp sequential increase of about 40% over Q2.

The best reason to own Astera stock over the next decade is its opportunity to generate more revenue per customer. It is selling more products and generating more revenue per AI processor its customers install in data centers. Management says new products could eventually command several thousand dollars per processor, which would further compound its revenue.

That growth would also multiply its earnings power, given its high margins. Astera's adjusted operating margin was 39% in the second quarter, and analysts expect earnings to grow at an annualized rate of 53% over the next several years.

Assuming the company delivers on those expectations, investors could earn great returns from here, even with the stock's high forward P/E of 41. Competition from larger networking suppliers, such as Broadcom, poses a risk. Still, Astera built its switch chips specifically for AI, which gives it an edge. The company will remain a key supplier of AI connectivity solutions for data centers, paving the way for further growth over the next decade.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom and Ciena. The Motley Fool recommends Astera Labs. The Motley Fool has a disclosure policy.