AI Stocks at a Crossroads: A Fundamental Case for Buying Now

The AI sector has faced volatility in 2025, with many stocks trading well below their 2023 peaks. For investors, this creates a critical question: Is this a buying opportunity, or a warning sign of prolonged underperformance? Let's dissect the fundamentals and long-term growth potential to find an answer.

1. Fundamental Valuation: Undervalued Growth Engines

The key to assessing AI stocks lies in valuation metrics, not just short-term price swings. Here's why now could be a turning point:

a. P/E Ratios: Discounted Growth

• C3.ai (AI): Despite a 10.13% annual stock decline, its trailing P/E improved to -10.06 (vs. a 5-year average of -55), signaling narrowing losses. The upcoming May 28 earnings report could catalyze a rebound if revenue growth continues.
• AMD (AMD): Trading at a 28% P/E discount to NVIDIA, AMD's AI chip (MI300X) is a game-changer for data centers. Its Q1 revenue surged 36% YoY, yet its P/E remains reasonable at 29.5, offering upside.
• NVIDIA (NVDA): Despite a TTM P/E of 44, its forward P/E of 28-29 reflects optimism about AI-driven margins.

b. P/S Ratios: Revenue Growth Outpacing Valuations

AI infrastructure stocks like InterDigital (IDCC) and Taiwan Semiconductor (TSM) are trading at P/S ratios of 1.2–2.0, far below their growth rates. TSM's Q1 revenue jumped 41.6% YoY, yet its P/S remains muted due to macroeconomic concerns.

c. EV/EBITDA: Infrastructure's Hidden Value

Data center leaders like TSM and Amazon (AMZN) have EV/EBITDA multiples compressed to 8x–12x, reflecting investor skepticism. However, McKinsey's projection of 20–25% annual data center growth through 2030 suggests this is a buying opportunity.

2. Long-Term Growth Drivers: The AI Revolution Isn't Over

The sector's fundamentals are underpinned by three unstoppable forces:

a. AI Infrastructure Demand

• Data Centers: NVIDIA's $8B data center expansion and TSM's 3nm chip advancements are fueling the AI compute boom.
• Enterprise AI: Microsoft's Azure AI tools and Amazon's AWS Bedrock are driving triple-digit growth in recurring revenue streams.

b. Consumer AI Adoption

• Voice & Vision Tech: Mobileye's (MBLY) autonomous driving solutions and Alphabet's Gemini AI are reshaping consumer tech.
• Content Creation: Tools like Adobe's Firefly and Canva's AI design platforms are mainstream, with $12B+ in projected annual revenue by 2027.

c. Regulatory Tailwinds

While antitrust scrutiny persists, governments are prioritizing AI investment to stay competitive. The U.S. CHIPS Act and EU's AI Act aim to accelerate innovation, not stifle it.

3. Risks and Considerations

• Overvaluation Concerns: High-flying stocks like C3.ai remain risky due to losses.
• Competition: Microsoft and Alphabet's AI platforms could crowd out smaller players.
• Macroeconomic Headwinds: Tariffs and inflation may delay enterprise spending.

But here's the key: Even with risks, the long-term AI trajectory is clear. Companies with cash reserves, patented IP, and strategic partnerships (e.g., AMD's Saudi Arabia joint venture) will dominate.

Conclusion: Act Now—Before the Rally Resumes

The AI sector is at a critical inflection point. While volatility remains, fundamental valuations and sector tailwinds suggest now is the time to buy:

• Top Picks:
• AMD (AMD): Undervalued AI chip leader.
• TSM (TSM): The backbone of AI manufacturing.

• C3.ai (AI): Post-earnings catalyst on May 28.

• Why Now?

• Valuations are at multi-year lows, but growth is accelerating.
• The $5 trillion AI economy is just beginning.

Investors who act now will secure positions in companies poised to redefine industries. The dip is temporary—don't miss the next leg of the AI revolution.

Gary Alexander's Bottom Line:
Buy beaten-down AI stocks with strong fundamentals and long-term catalysts. The risk-reward is skewed toward upside—act before the sector's next surge.