The recent Nasdaq correction has sparked an opportunity for investors to consider two AI-focused stocks with significant upside potential, according to Wall Street analysts. In this article, we'll dive into the details and explore why these stocks are worth a closer look.
Navigating the Nasdaq Correction
The Nasdaq Composite index has entered correction territory, primarily due to fears of a potential recession driven by soaring oil prices. However, history suggests that corrections can be lucrative buying opportunities. Over the past 15 years, the Nasdaq has averaged a 22% return in the year following its initial correction.
Micron Technology: A Memory Chip Giant
Micron Technology, a leading developer of memory and storage solutions, has been identified by Cantor Fitzgerald as a stock with immense potential. With a target price of $700 per share, it implies a staggering 98% upside from its current price. Micron specializes in DRAM and NAND flash memory, which are crucial for powering AI systems.
The memory chip industry has experienced a severe supply shortage, driving prices up. Micron, as the third-largest supplier of DRAM and HBM and the fourth-largest for NAND, has reaped the benefits. Its revenue nearly tripled in the last quarter, with a strong focus on the data center segment. CEO Sanjay Mehrotra attributes this success to strong demand and tight industry supply.
Despite this positive outlook, investors remain cautious due to the cyclical nature of the memory chip industry. However, I believe this wariness has created an attractive buying opportunity. Wall Street forecasts a 13% annual increase in Micron's adjusted earnings through fiscal 2029, making its current valuation of 16 times adjusted earnings seem reasonable.
AppLovin: Beyond Mobile Gaming
AppLovin, a developer of ad tech software, has expanded its focus beyond mobile gaming into web-based ads, targeting e-commerce businesses. Its new self-service platform, powered by AI innovation, has caught the attention of Wall Street. Citigroup sets a target price of $820 per share, indicating a 115% upside from its current price.
AppLovin's AI-powered machine learning software, Axon, has been praised by analysts as best-in-class. However, the company has faced scrutiny from short-sellers and the SEC regarding its data collection practices. While investors should monitor this situation, AppLovin has denied any wrongdoing, and analysts remain optimistic about its future.
Wall Street estimates a 44% annual increase in AppLovin's earnings through 2027, making its current valuation appear attractive. Most analysts agree that the stock is undervalued, with a median target price of $650 per share, implying a 71% upside.
Final Thoughts
The Nasdaq correction presents an intriguing opportunity for investors to consider these AI-focused stocks. Micron Technology and AppLovin, with their strong fundamentals and Wall Street support, offer significant upside potential. While there are risks and uncertainties, the current market conditions may provide an attractive entry point for long-term investors. As always, thorough research and a balanced perspective are key when navigating the stock market.
