Is Now the Time to Buy Beaten-Down AI Stocks?

As of the closing bell on May 20, the three major stock market indexes -- S&P 500, Nasdaq Composite, and Dow Jones Industrial Average -- are all essentially at break-even returns on the year. Under normal circumstances, mundane returns like these might have investors worried.

But 2025 has been anything but normal. Over the last several months, financial news has been packed with storylines featuring the potential for a recession, mixed economic indicators, ongoing geopolitical tensions in Europe and the Middle East, and (of course!) tariffs.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

At one point, each of the major indexes had dropped by double digit percentage points. The Nasdaq fared worst of all, declining by 21% at its low point. While the Nasdaq has bounced back considerably in recent weeks, some technology stocks are still trading for lower-than-usual valuations.

Let's explore some of the biggest movers and shakers in the Nasdaq this year. From there, I'll take a look at valuation trends to help suggest if now is a good opportunity to buy the dip in tech stocks.

It's been a rough year for the technology sector

The chart below illustrates price returns for a number of different technology-themed investments, particularly in the artificial intelligence (AI) sector.

QQQ data by YCharts

Shares of the Invesco QQQ ETF have gained roughly 2% on the year. This index fund tracks the Nasdaq-100 -- providing investors with exposure to a number of different AI stocks. Given this diversification, it's not surprising to see the Invesco QQQ outperform a number of individual volatile growth stocks this year.

This leads me to the "Magnificent Seven." For much of the last two years, it was pretty hard to lose money investing in Microsoft, Nvidia (NASDAQ: NVDA), Amazon, Alphabet, Meta Platforms, Apple, or Tesla. While timing mattered to some extent, these companies have largely become the de facto buys for AI investors. Yet this year, their respective performances have been far less predictable.

Lastly, there's Palantir Technologies. Despite a brief dip back in February, shares of Palantir have soared to new highs -- making it one of the biggest outliers among popular AI stocks.

Image source: Getty Images.

These AI stocks look too good to pass up right now

An important thing to understand is that just because a stock might be outperforming its peers or the broader industry doesn't make it a smart buy. While I am bullish on Palantir, the company's valuation is stretched right now. In addition, even though shares of Tesla may appear deflated, the stock has been experiencing a lot of momentum as of late -- despite the company's financial picture looking pretty questionable.

One pocket of the AI realm that has remained hot despite uncertainties in the macroeconomic environment is infrastructure. Companies such as Alphabet, Amazon, Microsoft, Amazon, Meta Platforms, and Oracle are spending hundreds of billions of dollars building data centers and outfitting these structures with the newest chip architectures. If I were considering AI stocks right now, I'd be looking at what companies stand to capture this infrastructure spend.

Some of the more obvious names that come to mind are Nvidia, Advanced Micro Devices, Broadcom, and Taiwan Semiconductor Manufacturing. Per the graphic above, each of these stocks is hovering around break-even levels on the year (essentially on par with the Nasdaq-100).

NVDA PE Ratio (Forward) data by YCharts

If you look at the forward earnings multiples for each of these companies, there is a clear pattern of compression throughout the year. However, more recent trends illustrate some resiliency -- as the forward price-to-earnings (P/E) multiples are beginning to climb ever so slightly.

To me, this signals that some investors are buying the dip -- albeit cautiously. While it may take some time for these companies to begin showing accelerated growth again, secular themes fueling their respective areas of expertise in the AI market (i.e., hardware) suggest the long-run bull thesis holds up.

Should you buy AI stocks right now?

Given how volatile the technology sector can be, it's important for investors to consider valuation before buying a growth stock. The key is to look for value and not chase momentum plays. Given the ideas explored in this piece, I do think now is a good opportunity to buy beaten-down AI stocks -- particularly in the semiconductor space.

Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $639,271!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $804,688!*

Now, it’s worth noting Stock Advisor’s total average return is 957% — a market-crushing outperformance compared to 167% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of May 19, 2025

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Oracle, Palantir Technologies, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.