Here Are 2 Artificial Intelligence (AI) Stocks That Tumbled During the Nasdaq Correction. Should You Buy the Dip?

Nasdaq Composite stocks stabilized in the last week, but the index is still in a correction following a sell-off fueled by weakening consumer sentiment, saber-rattling over tariffs, and concerns about stretched valuations after a surge across tech stocks in 2023 and 2024.

With the index down more than 10%, some Nasdaq stocks have fallen even more sharply, setting up potential buying opportunities. Let's take a look at two artificial intelligence (AI) stocks that are down during the correction and are worth buying now.

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1. AppLovin

AppLovin (NASDAQ: APP) hasn't gotten as much attention as some other AI stocks in the bull market, but it's performed about as well as any other. Even with its recent pullback, AppLovin stock is up a whopping 2,870% since the start of 2023, outperforming even Nvidia.

The stock soared as it's evolved from a mobile game developer to a leading adtech company, using its mobile game experience and catalog to build a leading AI-driven adtech platform. After starting out serving mobile game advertisers, the company branched into other industries, such as e-commerce, and is now focused on expanding to connected TV (CTV), or ad-based streaming, a massive advertising market.

The company also plans to launch a self-service dashboard powered by AI agents, diving further into AI technology.

AppLovin has also reported tremendous growth over the last couple of years, driving the surge in the stock. Advertising revenue, the core business, jumped 75% in 2024 to $3.2 billion, and it finished the year at $4.7 billion in total revenue. Meanwhile, net income jumped 343% to $1.58 billion, showing that the company is not only growing rapidly but is also highly profitable.

AppLovin also announced it would sell its mobile games business, allowing it to focus entirely on the advertising business.

After the stock peaked shortly after its fourth-quarter earnings report, it has fallen sharply in the Nasdaq correction, now down about 40% from its peak last month. The stock is still expensive by conventional metrics, but its valuation does look more reasonable as it now trades at a price-to-earnings ratio of 69.

Advertising tends to be one of the first businesses to get hit in a recession, so it's understandable why AppLovin has fallen so sharply. However, it appears to have gained a technological edge in adtech, and its explosive growth isn't an accident. Long-term investors should be rewarded by buying at the current price point, though macro headwinds would impact the stock's performance.

2. Arm Holdings

Arm Holdings (NASDAQ: ARM) is unique among semiconductor stocks. Rather than selling chips directly to customers, the company licenses its instruction set architectures for CPUs to a wide range of customers who then use those designs in their own chips. Arm then collects revenue from royalties once those chips are sold.

There's typically a lag of two to three years between when Arm sells a license and when it collects royalty revenue on the license. Therefore, the company is much better protected against a recession than many of its semiconductor peers because it has a revenue stream baked in that has not yet been realized. Additionally, half of its royalty revenue comes from products launched 10 years ago, so its royalty revenue is more stable than you might think.

The company is also seeing strong demand for AI products, and its market share is improving in nearly every semiconductor application category, including cloud computing, consumer electronics, automotive, and networking.

Arm does trade at a premium valuation due to its competitive advantages in power-efficient CPU architecture, and it's delivering impressive growth. It currently trades at a price-to-sales ratio of 34. However, the stock has pulled back in the recent correction, down 21% in the last month and 31% from its price on Feb. 5 after it popped on earnings.

The resilience of Arm's business model should give investors some reassurance in the pullback, and its large market opportunity in AI gives the stock significant upside potential over the coming years. It's a smart stock to buy on the dip.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $305,226!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $41,382!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $517,876!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

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*Stock Advisor returns as of March 24, 2025

Jeremy Bowman has positions in Arm Holdings. The Motley Fool has positions in and recommends AppLovin. The Motley Fool has a disclosure policy.