AI Stocks: The Silver Lining in an Otherwise Stormy Tech Market

Artificial intelligence (AI) stocks fueled stock market gains over the past two years as investors viewed AI as the next game-changing technology -- one that could join discoveries like electricity or developments like the internet.

On top of this, investors were feeling optimistic about the overall economy. The Federal Reserve was wrapping up its interest rate increases and on track to start lowering rates -- and this happened. The central bank launched rate cuts this past fall and indicated that more would follow. Against this backdrop, growth stocks also lifted benchmarks as these types of companies thrive in better economic environments -- it's easier for them to expand, and their customers generally have more money to spend on products and services.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

All of this helped the Nasdaq advance more than 43% in 2023 and post a 28% increase last year. But in recent weeks, this sunny market environment has turned stormy. President Donald Trump announced tariffs on imports, a move that could weigh on prices, driving inflation higher and hurting corporate earnings. As a result, the Nasdaq fell into the correction zone, dropping more than 10% from its latest high in December. But here's the good news: Even though AI stocks are falling right now, they still remain a silver lining in this stormy market. Here's why.

Image source: Getty Images.

Nvidia and Palantir's double-digit declines

So, first, a quick look at some of the losses we've seen in recent times. Nvidia (NASDAQ: NVDA), the world's top AI chipmaker, tumbled 15% over the past month; AI software company Palantir Technologies sank 17% during that time period; and AI voice specialist SoundHound AI lost 12%. And the list goes on...

Though these companies and technology and growth players in general may face headwinds in the near term due to economic uncertainty or a potential slowdown, it's important to keep in mind that AI prospects over the long term haven't changed. Analysts predict a compound annual growth rate of about 35% for the AI market through 2030 when they say it will reach more than $1 trillion.

And we have some concrete evidence that could happen. Companies from Meta Platforms (NASDAQ: META) to Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) have announced increased spending to support their AI programs. Meta said it would spend as much as $65 billion this year and is planning to build a data center the size of part of Manhattan. Alphabet said it plans $75 billion in capital expenditures this year, and much of this will go toward servers, data centers, and networking.

The Trump administration is even getting in on the idea of boosting AI, applauding OpenAI's announcement of the Stargate project and pledging to help involved companies access the levels of electricity needed. Stargate, formed by OpenAI and several tech and financial partners, will invest $500 billion in the coming four years to build AI infrastructure in the U.S.

Encouraging words from Jensen Huang

Finally, words from one of the biggest authorities on AI also offer reason to be optimistic about the long-term growth story. Nvidia Chief Executive Officer Jensen Huang says that the world's data center build-out will cost $1 trillion, and demand for Nvidia's chip architecture Blackwell -- a key step forward in accelerated computing -- surpassed supply during its recent launch. These trends point to more growth ahead even if certain headwinds temporarily weigh on revenue or stock performance.

So, what does this mean for you as an investor?

Now is a fantastic time to get in on promising long-term players because today, many have fallen to bargain levels. For example, Nvidia now trades for 26 times forward earnings estimates, around its lowest in about a year. The stock has traded between 40 times and 50 times estimates for most of the past year.

"But what if these players decline further?" you may ask. It's impossible to time the market and get in at the very lowest price, so the best idea is to buy a stock when valuation looks cheap or reasonable. Even if it declines further, this won't change your returns by very much over time.

All of this means right now is a great time to consider AI stocks -- a silver lining in today's stormy market -- and snap up bargains that could supercharge your portfolio in this lasting AI growth story.

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 Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $721,394!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. 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 March 18, 2025

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. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.