I'm BUYING the DIP in these 2 AI Stocks | Investor's Weekly Playbook

Welcome back everyone to another edition of the investors weekly playbook. A lot to talk about in today's video as a lot of news has crossed since our last taping a week ago. And over the course of the past week, all major indices were green across the board. My portfolio was up $22,000 on the week, climbing 5.6%. So, I was really happy on how that performed and how we crushed it inside my options edge plus community this week as well. Speaking of that, this weekend only, I am holding my end of summer sale on all premium subscriptions, which will get you 20% off any of those. So, be sure to lock in your price to join my private investing community. Check out the link in the pinned comment down below. All right, here's a look at what we're going to be covering in today's video. Stocks have regained their momentum. Inflation is up and the job market is showing some cracks. We'll talk a little bit about the Fed and the interest rates. A look at the week ahead. And then two AI stocks I'm buying the dip on. to stocks that have pulled back meaningfully. And thank you for all of the great feedback that you've provided thus far on this new segment. We've been rolling out for roughly the past month, giving detailed breakdowns on the market and a look ahead. So, as always, all I ask for is you to smash that like button down below, subscribe to the channel, and while you're down there, let me know what is your largest position inside your portfolio. For me, it's Alphabet. All right, with that being said, let's jump into our weekly market dashboard. And as you can see, green across the board. NASDAQ led the way, up 5.2% on the week, followed then by S&P 500, which was up 3.6%. The Dow Jones was up 3%. And checking in on small caps, we can see they too had a nice week with the popular Russell 2000 up 3.5% on the week. And here's a look at sector performance over the past week, which to no surprise, technology led the way with a strong 7% weekly gain, followed then by materials with a 5% move higher. Overall, only three sectors finished the week in the red with energy being the worst performing sector, down more than 3%, followed then by utilities, which was down roughly 1.5%. A few stocks have made some nice sizable moves in the past week, including Palunteer, who saw their shares climb roughly 40% after reporting stronger than expected results, and investors came flocking back to the name. I had a big win in the options community on Palunteer earnings this week. Shopify shares were also up nicely, up 30% on the week. And ARM Holdings also had a big week, climbing 18% just in the week alone. And then we have now good old now that I continue to cover on this channel, up yet another 12% last week alone. Service Now shares are up 40% in the past 3 months alone. And hopefully along this journey, you have jumped in on shares of Service Now with myself. In terms of economic data that came across last week, we got the ISM manufacturing PMI, the Jolts report, services PMI, our weekly jobless claims, and we ended the week with a big one, the monthly jobs report. So, let's begin with the ISM manufacturing PMI, which rose to 55.6 in August, coming in above the estimate of 54. Again, ISM manufacturing PMI is on a scale of 0 to 100. And when the reading is above 50, that indicates an expanding economy. and below 50 is vice versa contracting economy. So a score of 55.6 was actually the best reading since May of 2022. And leading the way was new orders which climbed 56.7 and employments jumped to 52.8 both also above their respective estimates of 55.4 and 49.8 respectively. The employment index, surging more than three points above its estimate, hit its strongest levels since August of 22, suggesting broad-based expansion across the sector. So, very positive reading there from that report. But again, this is what I like to refer to as soft data since this is really a survey. Now, let's move over and take a look at the latest Jolts report, which speaks to how businesses are looking to hire. And US job openings fell to 7.36 million in August, coming in below estimates, which economists were looking for 7.4. So, a slight miss there. And the previous reading was 7.54. So, we were down from that last month's reading as well. The decline though, it marks the lowest reading since March of 2026 this year with the gap between actual and estimate remaining relatively at a modest 41,000 openings. The quits rate that really remained unchanged at 2% and layoffs and discharges ended up to 1.766 in June from 1.761. So, a slight increase from May uh which saw a revision there, leaving the rate at 1.1%. So, yes, a slight dip in job openings, but nothing nothing overly concerning regarding the jobs market based on this single report here. So, now let's take a look at ISM services PMI, which came in at 54.1 in August, slightly above the prior reading of 54. So, that was pretty much flat for the most part, but below the estimates of 54.5, a slight miss, if you will, there. But again, this is a similar type survey that we saw with ISM manufacturing. But instead, this looks at the service side of things. New orders on that survey rose to 57.2. That was well above the estimates of 55.3. So that was a bright spot and the highest reading since May of this year. But the employment component, that was the sharpest divergence from expectations, falling to 47.4. And economists were looking for 52 flat. This was the lowest reading since March of this year and a notable drop from the prior month's reading of 51.2. This was giving us some insight into the total job market that was going to drop the key monthly report at the end of the week, which we'll get to here in a second. But now, let's look at our weekly update on jobs with jobless claims. So, weekly jobless claims there. The initial claims came in at 199,000 for the week. That was below the 202 estimate. But as investors, I don't pay much attention to the weekly noise because there can be a lot of up and down in there. Instead, I want to focus on what's called the continuing claims, which rose to 1.801 million, above the estimate of 1.79. So, continuing claims have now increased from 1.77 to 1.80 over the past week, even as new filings have remained quite low. Again, another report that points to the job market being on okay footing, showing some cracks, not great by any means, but so far holding together. But that was up until we got the main jobs report at the end of the week. The non-farm payrolls unexpectedly declined in July by 23,000 jobs. We lost 23,000 jobs with a big drop in the government sector. Economists were looking for 83,000 jobs to be added during the month, and this was the first negative month since February. However, the even bigger concern is with the prior month revisions that also took place. There's one thing to get a headline number, but really, you want to focus on those revisions because there can be a lot that goes into those. June was downwardly revised to 20,000 and May was revised down to 63,000 jobs, which that was actually a correction by 66,000. It was pretty much slashed in half based on what the initial headline report was. And now these revisions are saying, "Hey, it actually wasn't as great as we actually thought." With the revisions included, the 12-month average is down to just 34,000 jobs added per month. This was certainly not a great report, and it all shows that the jobs market is still standing okay, but on less stable footing and starting to show some cracks. And on top of that, the workers average hourly earnings growth that dropped to its lowest levels since May of 21, growing just 3.2% year-over-year. So why when the jobs report that we just went through, it came out did the market jump higher? It has everything to do with the Fed. Leading up to this jobs report release, all the talk was about high oil prices, rising inflation, that pushing the Federal Reserve towards raising rates, not once but twice. The next Fed decision is not until September, but looking here, you can see it's a near 5050 split on whether the Fed is going to keep rates unchanged or actually hike based on the Fed watch tool. But overall, the market is still now pricing or I should say now pricing in just one hike. This is why the markets jump because before the report, the markets were pricing in two hikes. And this is why I constantly say inside the Discord community, do not jump to conclusions and make investing decisions based on whatifs. Be patient. Wait for the data. And as I often say, interest rates can act like gravity to stocks. The higher the rates, the more pressure on stocks. So if we're talking about less hikes or no hikes, maybe even this year, which is now expected, that is some pressure release for stocks. And that's why we saw stocks increase on Friday. So are we back to the bad news is good news for the stock market. But with that being said, on the week ahead, we still are going through plenty of earnings. And speaking of earnings, this Wednesday, August 12th, at 12:00 p.m. Pacific, 3 p.m. Eastern, I'm actually going to be hosting a free investing webinar talking about the week ahead and what I'm doing the rest of the year. So, you can sign up with that link down in the description below. It's completely free. But getting back to earnings, here's a look at some key earnings reports set to roll out next week. On Monday, I'll be watching Rocket Lab. Coreweave is on Tuesday, Nebius on Wednesday, Cisco is a big name on Wednesday afternoon. And in terms of economic reports, we get an update on inflation with CPI and PPI next week. And then at the end of the week, we get a consumer sentiment report. So, still plenty of things going on from earnings as well as economic data reports that can be catalyst one way or the other for the market and things as investors we want to pay attention to. So, that's an update on the markets and a look ahead. Now, let's get to two stocks that have pulled back in a big way that I believe are worth a buy. Again, this is not financial advice. there. These are just my opinions alone. But over the past few weeks, we have seen several AI stocks pull back despite many of their businesses continuing to execute at an incredibly high level. Whenever that happens, I always ask myself one question. Has the business changed or has only the stock price changed? Because those are two very different things. Today, I'm going to be walking through two AI stocks that I recently bought on this pullback. So, with that being said, let's jump into stock number one, which is Credo Technology, stock ticker CRDO. Crito develops high-speed connectivity solutions for AI data centers. Think about what happens inside an AI cluster. Thousands of GPUs constantly exchange massive amounts of information. If the data can't move quickly enough, those expensive GPUs become less efficient. That's where Credo comes in. The company specializes in active electrical cables, high-speed certis, optical connectivity, and chiplets. Its products help maximize GPU utilization while reducing power consumption. Two priorities for hyperscalers building ever larger AI clusters. Critoshares are up over 100% in the past 12 months alone, but still relatively a small company per se in my eyes. With a market cap below 50 billion, it can be much larger and will be much larger in my eyes. However, shares have pulled back nearly 20% from their recent June highs. Revenue growth has been nothing short of extraordinary. Over the past 12 months, the company has reported revenue of 1.3 billion, growing more than 200% from the prior period. And the most recent quarter of 437 million was not only the company's best quarter for the topline sales, but also grew 157% year-over-year. That's exactly what I want to see from a high growth company. Even more impressive though, profitability has improved alongside revenue. Operating margins are at an all-time high of 33.3%. As operating profits grew over a,000% in the past 12 months to 445 million. To me, this isn't just a company growing rapidly. It's growing profitably from a liquidity perspective. This is a company that's in a strong position as they essentially have no debt and roughly 1.4 billion in cash and short-term investments. That gives management tons of flexibility. They can invest aggressively in R&D if needed, pursue acquisitions, and continue expanding without relying heavily on debt markets. That's exactly the type of balance sheet I like to own. Revenue is great. Accounting profits are helpful, but eventually real businesses generate real cash. Credo has now reached the point where strong revenue growth is transitioning into meaningfully profitability and free cash flow. as the company generated 47 million in free cash flow the past 12 months and has actually generated free cash flow positive free cash flow for three straight years and they are doing it with free cash flow margins above 30%. That's one of the reasons my conviction continues increasing on the name. Now comes the difficult question. Is the stock still attractive? Clearly, this isn't a cheap stock. I should say the market understands that Credo is becoming an important player in AI networking. But with the pullback in the stock, it's looking much more intriguing and that's why I'm looking to buy. And when you look at our stock investors edge website, you can see that this stock has an edge score of 71, which is quite solid. And this site is available again for all premium subscribers to which a reminder that we're having our end of summer sale this weekend only where you can get 20% off any of our premium subscriptions. When it comes to analysts though, they still rate the stock a strong buy with an average 12-month price target of $290. And in the next 12 months, shares are expected to grow earnings by 77%. Followed by nearly 50%. And right now, you can grab shares at a PE of 40. 40 alone sounds high, but when you look at those grow growth rates, that gives you a PEG ratio below one. I believe this is a stock that's going to surpass $300 by the end of the year. Now, let's be fair, there are risks. Customer concentration, competition, execution, all of that is meaningful, and the possibility that AI infrastructure spending slows, although I believe that's more of a focus at the end of 27 or the beginning of 2028. It's also worth watching the industry's shift towards optical technologies. Some investors worry these transitions could pressure parts of Credo's product portfolio, though others believe that the company is expanding its optical capabilities through acquisitions and new products. That's why position sizing matters. This isn't a low-risk utility stock. It's a high growth AI infrastructure company. And with that being said, let's move on to stock number two, which is going to be Sterling Infrastructure, stock ticker STRL. At first glance, many investors wouldn't even call this an AI stock. I disagree. Think about what happens before a data center ever goes online. Land has to be prepared, utilities installed, roads built, power infrastructure completed, concrete poured. That's exactly where Sterling has become increasingly important. As hyperscalers continue investing billions into new AI campuses, someone has to build the physical infrastructure. And that's exactly what Sterling has done. And over the past 12 months, shares of Sterling are up 80%. However, over the past two months, shares are down 45% with a lot of that coming recently as the company just reported their latest earnings report and the stock fell pretty handily. But looking here, you can see key highlights from that quarter. Revenues grew by 90%, EPS rose more than 100%, and Ebida margins reached a healthy 22%. But here's the key number. Look at that backlog sitting at 4.3 billion, up 116%. That's really the one of the biggest takeaways right there to not only show that AI spending continues at full speed ahead, but these are agreed upon contracts, orders that have been placed with Sterling that they just have to bill out and start building the actual infrastructure, which will lead to more revenues, more growth, and more free cash flow. In terms of guidance, the company raised their fullear guidance, now expecting revenues to come in between 4 or 4.15 billion and adjusted EPS between 19.7 and 2030. So why the drop off on the stock, you might ask, after those reports right there? Well, this is a perfect example of a stock and a business being very different at times. The business just reported a strong report on really most fronts, but expectations were just so high that even a double beat and a raise was not enough. Just some good old-fashioned profit taking and portfolio mixing, I believe. Which for us long-term investors, that's what we love to see because that's where we smell opportunity, which is why I bought the stock on the dip. The business continues benefiting from data centers, manufacturing reshoring, infrastructure modernization, multiple growth drivers working simultaneously. And one thing I appreciated about Sterling is management's focus on maintaining financial flexibility. The company has historically generated strong operating cash flow while keeping a solid balance sheet, providing room for acquisitions and organic expansion if needed. And as you can see from this graphic here, the company's cash far outpaces the company's debt, which is what I love to see. But turning over to cash flow, which continues growing rapidly over the past 12 months, Sterling has free cash flow that reached a new high of 482 million. That's important because accounting earnings are one thing, but cash generation allows companies to reinvest the future growth. Now, is sterling expensive? I certainly don't think so, especially after this drop. Because as you could see here, the EPS growth will reach 82% this year and grow another 30% on top of that in 2027. And with the stock trading at a forward PE of just 21.6 times, that gives us a PEG ratio well below one, which is what I like to see. Analysts are also seeing big upside in the stock, naming it a strong buy with an average 12-month price target of $866 per share, giving it more than 50% upside from current levels. And when I combine strong earnings, strong cash flow, AI infrastructure exposure, and continued execution, I still believe the long-term investment case remains compelling for Sterling, and the valuation makes sense. That is why I entered a position in the name on the sell-off. Now, of course, Sterling isn't without risk. No stock is, but if the AI data center construction slows materially, then growth could moderate. But again, that's something that I see is further out. And that's why I also keep a close eye on the backlog figure. Execution to acquisitions also matters. And after a strong run, expectations are high. Those are all factors investors should continue monitoring. But notice something interesting. Both of these companies that we looked at operate in completely different industries, but have similar growth drivers. One builds the networking that keeps AI clusters communicating. The other helps build the infrastructure where those AI clusters live. different businesses, same secular trend. Artificial intelligence or AI requires enormous investment, not just in chips, but in everything surrounding those. That's exactly why I continue buying both of these companies on weakness. Now, I'd love to hear from you. Which of these two companies do you believe is a better buy? Is it Credo or Sterling? Or is there another AI stock that has become attractive on a recent pullback? Let me know down in the comment section. And don't forget to take advantage of my end of summer sale that'll get you 20% off. See the pinned comment down below. And also make sure you sign up for my free webinar I'll be hosting this Wednesday afternoon. Hope to see you there. Thanks again for watching and we'll see you in the next one. Take care.