The Artificial Intelligence (AI) Hype Is Fading, and That's Creating the Best Buying Opportunity of 2026

Artificial intelligence (AI) has played a central role in driving the stock market's rally over the past three years, which isn't surprising, as the proliferation of this technology has led to impressive growth in revenue and earnings for several companies.

However, the AI magic isn't working in 2026, so far. The Global X Artificial Intelligence & Technology ETF, an exchange-traded fund (ETF) that invests in companies involved in the development and use of AI tools and solutions, has shed almost 9% of its value so far this year. In my view, this pullback has probably opened one of the best opportunities of the year for investors to buy AI stocks such as Nvidia (NASDAQ: NVDA) and Applied Digital (NASDAQ: APLD).

Image source: Nvidia.

Is the AI hype really fading?

The pullback of AI sector stocks so far this year may suggest that the hype around this technology is finally fading. Factors such as the Middle East conflict, expensive stock valuations, concerns about the long-term viability of heavy AI infrastructure spending, and the disruption that AI could cause to legacy businesses have kept the sector under pressure this year.

But a closer look at the performance of the companies driving AI proliferation suggests something different. AI isn't hype. It is driving tangible gains for companies that make AI hardware and software, as well as those adopting the tech. According to research conducted by Morgan Stanley, companies adopting AI across the transportation, healthcare equipment, automotive, retail, and real estate sectors are witnessing an average 11.5% increase in productivity. And according to a study by market research firm IDC, each dollar spent on AI services is expected to generate $4.90 in value. In that light, it won't be surprising to see AI adoption broadening.

Based on all that, the terrific growth that companies such as Nvidia and Applied Digital are delivering is sustainable, making them ideal investments for investors looking to add growth stocks to their portfolios.

These AI stocks can make a remarkable comeback

Nvidia and Applied Digital are key players in the AI ecosystem. However, both companies have been under pressure lately despite posting impressive growth.

Nvidia, for instance, is poised for solid growth this fiscal year. The company reported a 73% increase in revenue in its fiscal 2026 (which ended on Jan. 25) to a record $215.9 billion. Nvidia's guidance for $78 billion in revenue for the current quarter points toward a jump of 77% from the year-ago period.

It is easy to see why Nvidia expects its growth to accelerate. The demand for the company's chips isn't showing any signs of slowing down, as evident from CEO Jensen Huang's recent comments. Huang predicts that Nvidia will sell a whopping $1 trillion worth of its Blackwell and Vera Rubin chips through 2027.

A year ago, Nvidia said it expected to book $500 billion in revenue from its upcoming Vera Rubin and current-generation Blackwell processors in 2025 and 2026. The updated forecast suggests that Nvidia's acceleration is sustainable. That's the reason analysts are bullish about the company's earnings growth prospects.

NVDA EPS Estimates for Current Fiscal Year data by YCharts.

Assuming Nvidia's earnings indeed jump to $13.28 per share in fiscal 2029 and it trades at 23 times earnings at that time, in line with the tech-focused Nasdaq-100 index's forward earnings multiple, its stock price would reach $308. That would be an increase of 79% from current levels.

Applied Digital is another key component of the AI ecosystem, as it designs and builds data centers dedicated to AI workloads. The company has already signed 15-year lease contracts worth $16 billion for the two data center campuses it is currently constructing in North Dakota. This is why Applied Digital's top-line growth is on track to pick up speed.

APLD Revenue Estimates for Current Fiscal Year data by YCharts.

The good news for shareholders is that Applied Digital is in advanced discussions to construct three additional data center campuses with a combined capacity of 900 megawatts (MW). This will be in addition to the 600 MW that it is currently constructing at its two existing campuses.

What's more, analysts' 12-month median price target of $43.50 for Applied Digital would be a gain of 69% from the stock's current level. All 14 analysts covering it rate it a buy. With Applied Digital stock down by 38% from the 52-week high it reached on Jan. 28, now would be a good time to buy it before it regains its mojo.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.