The recent tech selloff made these 2 artificial intelligence (AI) stocks even better buys

Artificial intelligence (AI) has given many tech companies a big boost since ChatGPT gained immense popularity towards the end of 2022. However, it hasn’t been smooth sailing in recent months as doubts have been raised about the technology’s potential to give money. revenues instead of massive investments being made in AI infrastructure.

Throw in inflated valuations after the huge rise in tech stocks over the past year and a half thanks to artificial intelligence, and it’s easy to see why City Group advised investors last month to take profits in high-flying AI stocks. All of this explains why Nasdaq-100 Technology Sector the index retreated nearly 2% in the past month.

However, this sale means that investors can now buy certain AI shares at attractive valuations. Let’s take a closer look at two such names.

1. Micron technology

Actions of Micron technology (MU 0.75%) they are down almost 10% in the last month. Moreover, the stock has lost more than 35% of its value in the past three months. Investors can now buy Micron stock at an attractive price of 5 times sales, a discount to the US tech sector’s sales multiple of 8.

The stock’s forward earnings multiple of 12 is also a big discount for Nasdaq-100 forward earnings multiple of the index of 30 (using the index as a proxy for technology stocks). Investors should consider buying shares of this memory specialist at its current valuation due to its outstanding top and bottom line growth.

The chipmaker’s revenue in the third quarter of fiscal 2024 (which ended May 30) rose a remarkable 81% from the same quarter last year to $6.8 billion. Micron also swung to a non-GAAP profit of $0.62 from a loss of $1.43 per share in the year-ago period. It has now guided for revenue of $7.6 billion for the current quarter, along with adjusted earnings of $1.08 per share.

Based on guidance and its revenue for the first nine months of the year, Micron’s revenue for fiscal 2024 should reach $25 billion, a 61% increase from the previous fiscal year. Additionally, it expects to post a profit of $1.22 per share, compared to a loss of $4.45 per share in fiscal 2023. These great numbers suggest that the recent sharp pullback in Micron stock doesn’t seem warranted .

That’s especially true given that its revenue next fiscal year could jump 54% to $38.5 billion, according to consensus estimates. Even better, the company’s earnings are expected to multiply in fiscal 2025 to $9.44 per share. Such remarkable growth in Micron’s revenue and earnings will be driven by an AI-fueled recovery in the memory market.

AI is positively impacting the memory market in several ways. From the booming demand for high-bandwidth memory (HBM), which is implemented in AI graphics processing units (GPUs), to the ever-increasing memory content in computers and smartphones, it is easy it’s understandable why the memory market is poised for massive growth.

Memory chip sales will grow from $92 billion last year to $163 billion this year, a 77 percent increase. Market growth is expected to continue in 2025, with its total size reaching $204 billion. Not surprisingly, Micron is expected to deliver remarkable growth in its revenue and earnings. Given the valuation it’s trading at, investors would do well to buy it before its fortunes change.

2. Snowflake

Snowflake (SNOW 2.31%) is another company that has seen a significant decline in its share price of late, falling 24% in the last three months. The stock recently took a beating after Snowflake released its fiscal 2025 Q2 results on August 21. However, a closer look at Snowflake’s strategy to introduce AI-specific products to customers using its data cloud platform will likely help accelerate its growth going forward. .

Snowflake’s cloud-based data platform enables customers to consolidate their data on a single platform. They can then use that data to build apps, gain insights, or use AI to solve problems. The company is set to offer more AI applications to customers under the Cortex AI platform.

From enabling customers to quickly find insights in their dataset using generative AI to giving them access to popular large language models (LLMs) so they can build applications with their proprietary data without having to invest in expensive infrastructure, Snowflake seems to be doing the right thing to ensure it can drive higher customer spend.

Market research firm IDC projects that demand for AI software platforms could grow at an annual rate of 40.6% through 2028 as organizations find ways to integrate AI into their businesses and develop and deploy AI applications . The bright side is that Snowflake’s focus on providing AI services leads to a remarkable increase in remaining performance obligations (RPO).

The company’s RPO increased 48% over last year to $5.2 billion. That was higher than Snowflake’s 29% year-over-year increase in revenue during the quarter to $869 million. A company’s RPO refers to the total value of its future contracts at the end of a period, so faster growth in this value compared to actual growth in its top line suggests that its revenue growth could accelerate in future.

AI appears to be playing a key role in driving its RPO growth. Snowflake points out that more than 2,500 of its customers use its AI services on a weekly basis. That’s impressive considering Snowflake ended the previous quarter with just over 10,000 customers and started rolling out AI-enabled services towards the end of 2023.

So, as more Snowflake customers start using its AI services, there’s a good chance that the revenue stream will continue to improve and lead to stronger growth in the future. That’s why investors looking to add an AI software play to their portfolios should take a closer look at Snowflake, as it trades at 12 times sales after its recent pullback, a cut to its five-year average sales multiple of 31.