Over the last two weeks, Wall Street has sent a stern reminder to the investment community that stocks can, indeed, move in both directions.
Following an unwavering rally spanning almost two-and-a-half years, the growth stock-powered Nasdaq Composite (NASDAQINDEX: ^IXIC) officially entered correction territory. As of the closing bell on March 6, the Nasdaq Composite sat 10% below its all-time closing high of 20,173.89, set on Dec. 16, 2024.
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The hardest-hit stocks over the last two weeks have generally been those that benefited the most during the current bull market rally. In particular, artificial intelligence (AI) stocks have taken it on the chin.
The excitement surrounding AI stocks is palpable. Based on estimates from PwC, empowering software and systems with AI gives this technology a $15.7 trillion global addressable market by the turn of the decade. This is a big enough pie that a large number of businesses can emerge as winners.
But there's also the realization that every next-big-thing investment trend since (and including) the advent of the internet in the mid-1990s has undergone a bubble-bursting event early in its expansion. All game-changing technologies need adequate time to mature, and the fact that most businesses lack an understanding of how to optimize their AI solutions denotes that this technology hasn't matured yet. It's why I believe market-leading AI stocks Nvidia and Palantir Technologies may not be the best way to invest in this space.
Nevertheless, the Nasdaq stock correction has opened the door for opportunistic investors to pounce on four historically cheap, well-diversified, and all-around magnificent AI stocks.
Amazon
The first phenomenal AI stock that makes for a slam-dunk buy with the Nasdaq correcting lower is e-commerce behemoth Amazon (NASDAQ: AMZN). Although concerns about retail sales might weigh on Amazon stock in the very short-term, this is a company that generates the bulk of its growth and operating cash flow from its ancillary operations.
Nothing is more important to its future than cloud infrastructure service platform Amazon Web Services (AWS). AWS is aggressively incorporating generative AI solutions into its platform, which allows its clients to deploy custom AI applications and build large language models (LLMs). Sales growth at AWS has begun reaccelerating, with an annual revenue run-rate of $115 billion, as of the end of 2024. This high-margin segment typically generates more than half of Amazon's operating income despite accounting for just a sixth of the company's net sales.
Additionally, Amazon is expected to lean on its advertising and subscription service segments to do some of the heavy lifting. Big content wins, which includes earning the exclusive streaming rights to Thursday Night Football and select NBA games, afford Amazon exceptional ad- and subscription-pricing power.
While Amazon doesn't appear cheap using the traditional price-to-earnings (P/E) ratio, it is historically inexpensive relative to its future cash flow, which is a better measure of value for a company that reinvests a lot of its operating cash flow. Amazon stock can be picked up for a multiple of 12 times forward-year cash flow, which is 43% below the company's average price-to-cash-flow multiple over the last five years.
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Alphabet
Keeping with the "Magnificent Seven" theme, the second AI stock that makes for a no-brainer buy with the Nasdaq Composite correcting lower is Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), the parent company of search engine Google, streaming platform YouTube, and cloud infrastructure service provider Google Cloud.
Similar to Amazon, Alphabet's biggest long-term growth driver is its cloud infrastructure service platform. Based on estimates from tech-analysis firm Canalys, Google Cloud accounted for 11% of cloud-service spend during the fourth quarter, which is behind only AWS and Microsoft's Azure. Giving its customers access to AI solutions via Google Cloud should ramp up revenue for Alphabet's highest-margin segment.
But keep in mind that Alphabet isn't levered too heavily to the AI revolution. In 2024, 75% of its net sales came from advertising tied to Google search, YouTube, and Google Network. With Google controlling an 89% to 93% share of internet search over the trailing decade, Alphabet has a good chance to maintain its premier ad-pricing power.
Alphabet's valuation also makes sense amid a historically pricey stock market. Its forward P/E of 17 sits roughly 26% below its five-year average, while its multiple of 13 times forecast cash flow in 2026 equates to a 27% discount to its half-decade average. The cherry on top is the company closed out 2024 with a hearty $95.7 billion in cash, cash equivalents, and marketable securities.
Baidu
The Nasdaq stock market correction is the perfect time to look overseas for outstanding AI stocks to buy, as well. China-based internet search giant Baidu (NASDAQ: BIDU) stands out as a perfect example.
Baidu has been China's equivalent of Alphabet's Google search engine for more than a decade. With few exceptions, Baidu has earned a 50% to 85% monthly share of China's internet search over the trailing-10-year period. This makes it the logical go-to for businesses wanting to target Chinese consumers with their message(s), and more importantly provides a healthy sales and profit base that can somewhat insulate it from stock market volatility.
Like Amazon and Alphabet, Baidu is spreading its wings in the cloud infrastructure service space within its home market. During the December-ended quarter, non-online marketing revenue surged 18% from the previous year, with AI Cloud given credit for most of this growth. Complementing its cloud platform with AI solutions, including its Ernie LLM, should be a stepping stone that accelerates enterprise cloud spending.
China stocks also tend to be cheap given the uncertainties surrounding President Donald Trump's import tariffs, as well as the unpredictability of China's regulators. Despite these added headwinds, shares of Baidu can be scooped up right now for approximately 8 times forward-year earnings. This is a bargain considering the company is sitting on more than $19 billion in combined cash, cash equivalents, and short-term investments.
Meta Platforms
The fourth magnificent artificial intelligence stock that makes for a slam-dunk buy during the Nasdaq Composite stock correction is social media colossus Meta Platforms (NASDAQ: META). Yes, another diversified Mag-7 stock.
While I'll touch on Meta's AI ambitions in a moment, it's critical to recognize that nearly 98% of its net sales last year -- $160.6 billion out of $164.5 billion -- can be traced back to advertising. Meta Platforms is the parent of some of the most-visited social sites on the planet, including Facebook, Instagram, WhatsApp, Facebook Messenger, and Threads. The 3.35 billion daily active users its family of apps attracted in December 2024 help it sustain top-tier ad-pricing power in most economic climates.
Though Meta is, first-and-foremost, an ad-driven business with strong cyclical ties to the U.S. and global economy, CEO Mark Zuckerberg is positioning his company to be an AI leader. Meta is one of the few businesses seeing well-defined benefits from the incorporation of AI into its ad-based platforms.
Looking further down the line, the company can utilize AI in its virtual reality headsets, as well as in the metaverse. Zuckerberg may appear hesitant when investing for next-big-thing trends, but he has an excellent track record of successfully monetizing new platforms when the right time is right.
Lastly, Meta's sub-22 forward P/E ratio remains attractive given its sustained double-digit sales and profit growth rates.
Should you invest $1,000 in Amazon right now?
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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. 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. Sean Williams has positions in Alphabet, Amazon, Baidu, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Baidu, Meta Platforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
