September syndrome, the historical trend of Wall Street underperforming in September, is already making its presence felt in the U.S. stock markets. The first four trading days of this month saw the Dow, S&P 500, and Nasdaq Composite tumble by 2.9%, 4.2%, and 5.8% respectively. Overvalued AI stocks took the brunt of this recent market downturn. Despite the mayhem, the AI frenzy remains undeterred. No negative news has emerged for the generative AI ecosystem, making this dip a prime opportunity to acquire AI-centric stocks for near-term gains. Three such stocks, all carrying a Zacks Rank #2 (Buy), are: Taiwan Semiconductor Manufacturing Company Ltd. (TSM), Micron Technology Inc. (MU), and NetApp Inc. (NTAP).
While some view this market downturn as a signal of an impending recession, a closer look reveals a different story. Technically, a recession requires two consecutive quarters of negative GDP growth. The U.S. GDP expanded by 1.4% in the first quarter of 2024 and 3% in the second quarter. Furthermore, the Atlanta Fed GDPNow projects a 2.1% GDP growth rate for the third quarter. Recent economic data, while soft in some areas, does not point towards an imminent recession. The Federal Reserve, in fact, was awaiting such weak economic data, particularly in the labor market, alongside a gradually declining inflation rate, as a signal to initiate a rate-cut regime.
The recent AI turmoil is likely nothing more than profit-taking, especially by institutional investors. Stock markets are populated by bulls and bears. As bulls soar, bears wait patiently, seeking the right moment and justification to book profits, allowing them to re-enter the market at more favorable levels. This year, the buy-on-the-dip strategy has consistently proven effective. Every dip, particularly in AI giants, has resulted in aggressive returns within a short timeframe. The same outcome is expected to repeat this time.
Three AI-Focused Stocks With Significant Price Upside
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Taiwan Semiconductor has emerged as a global poster child for the AI frenzy. TSM is the world’s largest manufacturer of AI-based chipsets, supplying leading AI chipset developers. The company is experiencing strong demand for its advanced technologies, including 3nm and 5nm. TSM’s ongoing efforts to ramp up 3nm production and develop 2nm technology further solidify its position. As the primary manufacturer of NVIDIA Corp.’s (NVDA) chipsets – a global leader in generative AI-based chips – TSM also caters to Advanced Micro Devices Inc. (AMD) and Intel Corp. (INTC), among others.
Solid Earnings Estimate Revisions for TSM Stock
TSM is projected to achieve a revenue and earnings growth rate of 23.6% and 24.5%, respectively, for the current year. The Zacks Consensus Estimate for the current quarter, current year, and next year’s earnings has improved over the past 30 days.
Huge Price Upside Potential for TSM Shares
Taiwan Semiconductor’s stock price has surged 50.8% year-to-date. While it has dipped 4.7% in the past month, the short-term average price target of brokerage firms for the stock represents a 25.1% increase from the last closing price of $156.82. Brokerage target prices currently range from $170 to $250.
Micron Technology Inc. (MU)
Micron Technology is benefiting from the explosive growth of AI applications, which has driven demand for its high-bandwidth memory chips. MU is a major producer of memory chips used in NVIDIA’s GPUs. The company is capitalizing on improved market conditions, robust sales execution, and strong growth across multiple business units.
Micron Technology anticipates rising DRAM and NAND chip prices, contributing to revenue growth. This pricing advantage is primarily fueled by the increasing demand for AI servers, leading to a scarcity of cutting-edge DRAM and NAND supplies. Furthermore, 5G adoption in IoT devices and wireless infrastructure will boost demand for memory and storage.
Strong Earnings Estimate Revisions for MU Stock
MU is projected to achieve a revenue and earnings growth rate of 57% and over 100%, respectively, for the current year (ending August 2025). The Zacks Consensus Estimate for the current quarter, current year, and next year’s earnings has improved over the past 60 days.
Tremendous Price Upside Potential for MU Shares
Micron Technology’s stock price has risen a modest 1.3% year-to-date. Despite a 6.2% dip in the past month, the short-term average price target of brokerage firms for the stock represents an 80% jump from the last closing price of $86.38. Brokerage target prices currently range from $100 to $225.
NetApp Inc. (NTAP)
NetApp’s performance is driven by demand across its all-flash and cloud storage portfolio. In the fourth quarter of 2024, the All-Flash Array Business’ annualized revenue run rate reached $3.6 billion, up 17% year-over-year. NetApp expects its expertise in addressing critical customer priorities, including AI, business analytics, cloud transitions, data security, and application modernization, to drive expansion. NTAP’s enterprise storage products will empower users to enhance their workloads, encompassing traditional enterprise applications and generative AI.
Robust Earnings Estimate Revisions for NTAP Stock
NTAP is projected to achieve a revenue and earnings growth rate of 4.9% and 8.8%, respectively, for the current year (ending April 2025). The Zacks Consensus Estimate for the current quarter, next quarter, current year, and next year’s earnings has improved over the past 30 days.
Attractive Price Upside Potential for NTAP Shares
NetApp’s stock price has climbed 29.6% year-to-date. While it has declined 4.2% in the past month, the short-term average price target of brokerage firms for the stock represents a 13.3% increase from the last closing price of $114.18. Brokerage target prices currently range from $108 to $155.
