Bull markets are fun because stock prices go up rather than down. The downside is that top-notch stocks often rise to excessive valuations, which can diminish their long-term return potential. Recently, volatility has begun creeping into the broader market after mostly good times these past few years.
If these expensive but otherwise exceptional stocks begin falling to more attractive prices, it could be the buying opportunity investors have long waited for.
Three Motley Fool contributors did their homework and circled CrowdStrike Holdings(NASDAQ: CRWD), Amazon(NASDAQ: AMZN), and Tesla(NASDAQ: TSLA) as market pullback must-haves. If the market stumbles, consider these high-flying AI stocks high-priority buying targets.
A steep valuation is arguably CrowdStrike's only flaw
Justin Pope (CrowdStrike Holdings): Next-generation cybersecurity star CrowdStrike Holdings offers investors much to like. Hackers are more sophisticated than ever, and a data breach can cost enterprises millions of dollars in damages. CrowdStrike is among a new wave of high-end cybersecurity companies. Its cloud-based platform uses artificial intelligence (AI) and data analytics to help detect potential threats faster than traditional antivirus programs.
The company has received industry recognition for its technology, which shows in its business results. CrowdStrike protects 300 of the Fortune 500 companies and 543 of the Fortune 1,000. The business generates more than $4 billion in annual recurring revenue, converts 23% of sales to free cash flow, and is generally accepted accounting principles (GAAP) profitable. The balance sheet has $3.5 billion in cash (net of debt) and is quickly piling up, with revenue growing by more than 28% year over year last quarter.
Cybersecurity is among the hottest growth trends in technology, so CrowdStrike should enjoy steady demand for the foreseeable future. Management estimates its total addressable market at $116 billion, well beyond its current scope. Perhaps the stock's most significant flaw is its valuation. Its price-to-sales ratio (26) is among Wall Street's most expensive. The valuation has proven resilient, especially given CrowdStrike's embarrassing IT outage controversy over the summer.
It could take some marketwide volatility to knock CrowdStrike's price tag down. Don't hesitate to back up the truck on this long-term winner if that happens. The stock has the profitability and growth potential to generate sustained market-beating returns if investors can scoop up reasonably priced shares.
AI improves the overall user experience for this e-commerce conglomerate
Will Healy(Amazon): Amazon stock has often prospered by capitalizing on tech-driven industry trends, and AI is merely the latest example.
As the leading cloud infrastructure provider, it will serve as the platform by which numerous companies use AI-driven services and tools. Through the technology, it will help its customers automate tasks, analyze data, and build new applications.
Moreover, the benefits extend beyond its cloud segment, Amazon Web Services (AWS). Its e-commerce arm makes use of the technology in a variety of ways. These benefits include personalizing customer preferences, optimizing supply chains, and writing product descriptions.
Also, the e-commerce-driven North American and international segments include subscription, third-party seller service, and advertising businesses, and AI also drives efficiencies in these areas.
Amid Amazon's past success and AI utilization, it belongs on investor watch lists, and it likely would not take a huge sale to make it an excellent buy. At just over $215 per share, the recent 11% drop in the share price places it in correction territory.
Also, its recent P/E ratio of 39 may appear inexpensive when considering that it has traded for more than 50 times earnings for nearly all of its history as a profitable company.
Additionally, Amazon remains on track for significant growth, especially considering its massive $2.3 trillion market cap. In 2024, amid its 11% revenue growth, net income rose 94% to $59 billion.
The increases may slow modestly going forward. Still, with analysts forecasting 10% revenue increases in both 2025 and 2026, it will likely maintain rapid profit growth.
In the end, both AWS and its e-commerce segments have made extensive use of AI. This has occurred during a correction that offers prospective investors a slightly discounted stock price. Should the stock continue to fall and it enters bear market territory, Amazon's value proposition could become too attractive for many investors to ignore.
The recent collapse in Tesla stock offers a good entry point for patient investors
Jake Lerch (Tesla): With the stock market having come down from its recent highs, I'd suggest AI investors consider adding some shares of Tesla.
That's because, in my view, Tesla is an underrated AI stock. Granted, the vast majority of its revenue today comes from electric vehicle sales. However, in the long term, this company will sink or swim based on its AI-powered innovations. Think robotaxis, full self-driving, and its Optimus humanoid robot.
All of those products and features will require enormous AI advancements that will deliver value to consumers. Clearly, Tesla is making enormous investments in AI, including its Dojo and Cortex supercomputers, which are designed to train on the vast amounts of real-world data collected by Tesla vehicles.
At any rate, it may take years for Tesla's AI plans to come to fruition. However, for the patient investor, that offers an opportunity.
As of this writing, Tesla shares are down more than 37% from their most recent all-time high. Yet, this is no rare scenario for Tesla stock. The company's shares experienced pullbacks from all-time highs of 25% (or more) on four prior occasions since 2020.
Each of those dips was a buying opportunity for the shrewd long-term investor. Indeed, for investors who bought on the earliest pull-back in 2020 and held their shares until today, a $10,000 investment would now be worth more than $121,000 -- despite the fact that Tesla shares have plummeted by close to 40% in recent weeks.
The lesson: Ignore the noise when it comes to Tesla stock. Instead, long-term AI investors should use this recent correction as an entry point and hold those shares for years to come. Your future self may thank you for it.
Should you invest $1,000 in Amazon right now?
Before you buy stock in Amazon, 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 Amazon 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 $765,576!*
Now, it’s worth notingStock Advisor’s total average return is890% — a market-crushing outperformance compared to170%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jake Lerch has positions in Amazon, CrowdStrike, and Tesla. Justin Pope has no position in any of the stocks mentioned. Will Healy has positions in CrowdStrike. The Motley Fool has positions in and recommends Amazon, CrowdStrike, and Tesla. The Motley Fool has a disclosure policy.
