WTF Is Happening to These 5 AI Stocks. Thomas Says Buy the Dip

It's a summer of volatility in the market, especially in the AI trade, and that's why you're going [music] to find a lot of those names on Thomas's August buy list. Joining [music] us today is MarketBeat analyst Thomas Hughes with his monthly five stocks to buy this month list. Thomas, I cannot believe it's already August, talking about back to school season and hopefully getting back to the market season, too. Let's start out with what you have noticed this summer in the market, especially in a lot of these really big AI names. >> Well, right. This has been one of the hardest summers uh for trading and investing that I think I've ever seen. It's just completely wonky. Things aren't really making sense. You have lots of great companies, good fundamental stories, good results, good analyst sentiment, um institutions buying, and yet no traction in the stocks. We have great stocks that are selling off in correction territory. Some names down 20, 30, 40, 50% in some cases, just really completely disconnected from their fundamental stories. I mean, there are lots of macroeconomic fears in place and and reasons for anxiety and angst, but again, just massive disconnections from the fundamental stories. I think that we're going to see catalysts begin to emerge over the next few weeks as we see the remainder of the Q2 earning season, get the guidance for the second half, and then even more importantly as uh the summer comes to an end and we see that smart money come back to the table. >> Yeah, I think those are big things to highlight moving into August is that we ended July on such a mixed note. We had a major market drop on Wednesday with that Fed meeting, on Thursday uh some big tech earnings came out and helped to rise the market in some areas in particular. We saw 15, even 20% swings on some of these big tech names on Thursday. So, a lot of volatility, but this volatility is coming all on pretty low volume, too. So, let's talk about that with this summer season in particular heading into August. >> Well, right. I think uh you know, I talked about the smart money, big institutional investors, the old adage of sell in May and go away. Uh whether or or they sold or bought is remains to be seen, but I think that they did a lot of positioning in May. I think they've just been on the sidelines since then, which is part of why we see such big exaggerated movements. We've got, you know, retail traders expecting to see big things happen because of these big news events, but they're not the way that we expect them to because there's no there's no meat in the market. Um I think that'll change coming into the summer and we see the smart money start coming back from vacation. >> And when is end of summer? Can we expect that in August or is it closer to September? >> Probably more like in September. I mean, school starts back end of August, but I think uh generally speaking, we'll see the market start gaining some more traction uh early in September. But just as you were saying a minute ago with the FOMC, that is a great example of how just really wacky the market is right now. And nothing changed except they had their meeting. We're down 2%. Why is this? The Fed did what we wanted. So, again, it's just like expectations. When you expect things to happen, they don't usually. And then you just got to wait for the next great uh opportunity to get in. But I think we're already seeing that. >> Yeah, we're absolutely seeing that in the five names that you have for us this month. And these are really strong names in the tech sector that um have been a part of that volatility story. They were on a big pullback. Some of them are bouncing back towards the end of this week, but really volatility is the name of the game here. So, let's get into that first company that you have for us. And for those who watch Thomas's monthly stock buys every month, this one is going to be a familiar name. >> Yeah, this is Advanced Micro Devices. Advanced Micro Devices has been on the list for quite some time. Uh recently, it pulled back from over or about 560 to about 420. Pretty deep pullback. Just recently, it hit that near-term bottom and is rebounding ahead of the earnings release uh because we are expecting to hear some very good news in this release. AMD's story is really only about to unfold. They're going to make some um announcements about the MI 450 line, the Helios Rex system line, which is being backed up by a very robust news stream, which includes deals and demand for these very products. I expect to see their GPU market uh GPU sales really double immediately upon the release and continue growing at a triple-digit rate for the next few quarters after that. And that's just the GPU market. There's also the CPU market and then longer term down the road there's the IoT and edge computing market. All of these things are being reflected in the analyst sentiment trends, all pointing to higher prices. I think it's all going to be unleashed by this upcoming release. >> And this is a name you've been bullish on for a very long time. I added it to my Britain's list when you suggested it back in November and it is up 127% from then even with the pullback that we've seen over the last couple of weeks. And so one question I have here is was the pullback that we saw healthy? I know you say based on fundamentals there wasn't really a reason for it. Was part of that reason potentially just the stock had run up so much in such a short time frame? >> Sure. And that's part of why the pullback is not as alarming as it could be. You know, a 25 35% pullback is actually a bear market. It's not good news. But when the stock is up 120% that giveback is really nominal. Um it's profit taking. It's just natural market mechanics. Certainly sets us up for the next run higher based on the valuation metrics and the analyst sentiment trends that next run could add another triple digit to this stock, maybe 200 300% to where we are right now. And that's assuming that the current forecasts are correct. And right now all signs point to them being far too low. So honestly AMD's story is yet to be to be known. I think the upcoming two quarters are going to be really really hot for this market. Expect some volatility, expect some pullbacks. Uh but as long as the news stream continues to confirm this outlook, this demand cycle, then pullbacks are going to be buying opportunities. >> It's a pretty bold call Thomas at how far you expect AMD to grow. But I know you've been making that call for a while and so far it's been coming true for the stock. >> The story is it's AMD versus Nvidia's, right? And it's yet to enter that initial GPU phase that Nvidia has been benefiting from for the last 3 years, but with AMD there's also the inference angle, which many are saying is bigger than Nvidia's market, which is more focused on on the training. So, you think that a a training data center begets a model, two or three models, those models can support multiple data centers worth of inference load, and that's where AMD's product comes into play as inference. So, I really am excited about about this release and the next few quarters, the new cycle that it's going to bring. >> Yeah, any fears at all with the release coming up that, you know, the market it seems like it needs a lot to be impressed. The market is not easily impressed with any AI stories, and they're already pricing in so much growth, and then even though you might have a really strong report, the market's not impressed because they priced it all in already. Is that anywhere in your fears for AMD with this earnings report coming up so soon? >> There is some risk of execution just because there is a lot of expectations built into the release, but I think that will just be reflected in volatility. I think the story will unfold. The risk now would just be the timing and the and delays, and when the revenue will begin to be recognized. >> We've got four other names to cover, but this one I I want to strategically talk about a little bit more because there has been some volatility in the last few days. We had that pullback, and then a major bounce back on Thursday. What is your suggestion for investors who are trying to to time the bottom on these pullbacks? Have you already missed that the biggest pullback you're going to see in AMD for a while? Is there potential for even more pullbacks? For you, what is a big enough pullback to want to add to a position in a stock like AMD? >> Uh so, for this it's hard to to quantify with like a specific number. You're going to want to look for support targets, for areas of congestion where the market has been actively buying or selling, and target those levels as levels where they're going to start buying or selling again. So, in the case of AMD, you might want to set an entry point at at a low price point in anticipation of a pullback. You won't be able to call the exact bottom, but if you set it in the right place, the market will pull back through that level, trigger your entry, and then it'll rebound back the way that it has over the last couple of days, indicating that this most recent pullback was in fact a buying opportunity. >> All right, some great advice for your first buy list in August. Again, this is one of those names that have pulled back. The second stock on your list also the perfect buy the dip tech company to talk about. This one we've talked about several times because the pullback is so interesting. Let's get to stock number two. >> Right, that's Micron. Micron is critical to AI for HBM memory. Right now, it's being treated like a a legacy memory cycle in which there's a boom for demand, but once that boom is met, it evaporates. What the market is mispricing is that the AI boom is is still early in its early phases. It's got many years to run, and it's not just a a niche event. This is a transformation of the entire digital ecosystem that's going to lead to more memory demand over time, especially as the models and the underlying technology become more advanced. The more advanced they become, the more memory they're going to need, and that is driving demand for Micron's products. One of the shifts in the memory market today that's been confirmed by Micron and by SK Hynix is that instead of pricing their product on on spot demand, they're now locking in long-term contracts for these products for multi-year delivery of of of capacity, which has been unseen before. It really cements the idea that this is a persistent cycle of real significant change in the dynamics of the memory market. >> isn't just a short-term supply and demand issue. This is clearly a long-term story with these long-term contracts that they are already getting deals with, and we're seeing that with the hyperscaler earnings. I think that's why we we saw such a bounce with these memory stocks on Thursday when we saw some of those reports come out on Wednesday and Thursday. It just showed how much money is being spent and invested in this area. It's a key priority for spending for a lot of hyperscalers. I want to talk about the pullback that we saw, and I I I know mentioned this with AMD. Some of that could have been a healthy pullback. Do you think that that was a part of the the pullback we saw in MU? Or there other reasons that the market was pulling back so strongly on MU over the last couple of weeks? >> Well, right. Yeah, it's it's all part of the same ball of wax. It's natural market mechanics that are being driven by these factors we're talking about. They're being amplified by lack of volume and summer trading conditions. All kind of part of a big package, which has helped set up the buying opportunities today. And we've seen pretty exaggerated upside movements and downside movements. And now we're looking at rebounds occurring with really ample upsides available. So, assuming we get these catalysts that we're talking about now that are already emerging, these stock price rebounds should move up to set new highs. And one of the the reports that you're you've been talking about that catalyzed the rebound in play right now was Microsoft. Microsoft results outperformed expectations, but also included robust spending plans. It's the spending plans that are really driving the rally right now. It's confirming that yes, the AI buildout is happening. Yes, we are going to buy billions of dollars in GPUs. When we buy that many GPUs, we need to have that much memory, that much connectivity, that many data centers. It just affirms the whole complex. With that in play, we should expect to see all of our our data center and AI leaders continue to perform well. >> I always like to point out when something that you've said has all played out exactly as you said it would in the market. And this is one of those. On one of our MarketBeat Mondays, we were talking about the the dramatic pullback in MU. And you were saying, "This is an absolute buying opportunity, especially buy before those hyperscaler earnings." Which we saw this week. You said that the hyperscaler earnings were going to be a catalyst for MU to have a bounce back. That is exactly what has happened this week. So, good call on that, Thomas. That that is absolutely playing out exactly as you said it would. I'm curious how much of a bounce back do you think it's going to continue? We saw a bounce back this week, but we're still not near MU's high. How How do you think it could take to regain the highs that Micron saw just a few weeks ago? >> Um, I think the highs could come pretty quickly cuz that would just be the market melting back up to where it was. The big question is how much higher it can go from there, and I think that it will be comparable to Nvidia. Um, the price metrics, the forward earnings outlook, the demand outlook. Right now they're saying that the HBM demand imbalance isn't going to be fixed until 2028. Two more years of extreme pricing power. Uh, so I think that this stock could easily hit new highs and then continue on for another 100 to 200% possibly more over time. >> Some big calls on some of these big names, Thomas. Thank you for sharing that second pick on your list today. Clearly we're seeing a bounce back in the first couple of names that you mentioned that were on a pullback just in the last week. Another sector that doesn't show up on your August buy list, but is also very much still in that pullback range, is the space sector. One of our analysts at MarketBeat just put out a fresh article on five space stocks that are all down significantly right now, and he breaks down whether they're still worth a buy or ones that you want to get out of in this massive pullback in the space sector. You can scan the QR code or click the link in the description to get that article for free right now on marketbeat.com. This is a buy the dip sector that you definitely want to dive into some research on. An important note that it's not showing up in Thomas's buy list this month. We are focused almost entirely on the AI story for your August buy list, Thomas. Let's get on to that third stock that you were looking at. >> Well, the next one is Credo Technology. So, Credo Technology is another niche technology player, but one that is now AI critical. Um, its active electric cables provide uh, cost-efficient data transfer at high speeds suitable for AI, and it's in high demand. We're looking at accelerating growth and profitability, but more importantly, like Nvidia, it's investing in the future. It's also critical to optics and photonics, which is all part of the connectivity, the scale out and scale up solutions to to data centers making them big enough, powerful enough, and connected enough to actually do what it is we think that they can do. >> And this is one that is a little off on its earnings timeline. It reported in early June and won't report and won't report again until mid-September time frame. Let's break down what happened in that last quarter report for Credo and what you expect for Credo coming up in the this latest round of earnings next month. >> Well, outperformance, robust backlog growth, and solid guidance. I expect to see the same with the upcoming report. One of the benefits about Credo's reported being a kind of off-cycle is that it can affirm and then be reaffirmed by the other AI players. So, like it was pointing to Microsoft strength and Microsoft is again pointing to its strength. Microsoft is building data centers, they need GPUs from AMD and from Nvidia, and they're going to need AECs to connect them together. So, as long as the hyperscalers are spending money, then companies like Credo are going to be benefiting from it. >> And we're seeing that this week. This stock had a nice bounce this week, but it is still down over 25% from the highs that it saw again just a few weeks ago. These charts kind of look eerily similar with the kind of pullback that we saw in this wonky summer that you started out talking about. What advice do you have for Credo investors? I know they were really enjoying the gains the stock was seeing just a few weeks ago. Is it a time to pullback on a panic like this or is it a time to continue adding to your position? >> Well, for me, the stock price uptrend is still intact. This pullback is a time to add to the position for traders and investors alike. You're just going to want to watch the peaks and the troughs. When we get down to a bottom like we are now, you can add to positions. When we move up to new highs, you can take some profits. That's just part of part of being smart and and playing the market. >> Yeah, that's what these videos are about, too. You might hear Credo suggested more than once, but it's what do you do with Credo in August that we are talking about today. I do want to talk about Credo long-term. Is there any risk here? This is one where you you know, you talk about the backlogs all the time. You talk about the evidence from hyperscalers of how much they're spending here. Where's the risk for Credo? Where can we see a potential fall back of Could we see an even further pullback at sometime? Is there a risk here? >> Well, right now the risk for Credo would be at the data center build out does not continue. But what we're seeing now is evidence that it is continuing and it's still gaining momentum. The most recent news that we're hearing is that AMD is making deals to sell massive amounts of GPUs to hyperscalers and neo-cloud operators, which just increases demand for all the connectivity devices of which Credo is a leading provider. >> Yeah, so as long as the AI build it continues, Credo should continue to bring in the revenue and we'll see if that translates into the stock price also growing along with that revenue. >> But then you know, longer term there's just that that market mispricing misunderstanding the AI revolution um for what it is and it's not just a blip on the radar. It is a change in everything digital. Everything about computers, networking, the internet is different than it was just a few years ago and Credo's products are going to be required to make it all work indefinitely into the future. >> I think that's a great point Thomas just talking about all of this volatility that we see in the tech market not just this summer, but over the last few months cycles of volatility we've seen in AI. Is there a bubble? Is there not a bubble? It does feel like the market just trying to figure out how big of an impact and what kind of value to place on this AI story because it's new. It's all very new. The AI infrastructure story is new and there's still plenty of debates about how big this market is actually going to be. Um so I think that's a great point to for investors to keep in mind that you might see some volatility based on those differing opinions, but so far all of the numbers, the solid fundamental numbers are showing the growth story is very real. It's not imaginary. It's happening. So a good look at Credo. Let's move on to a different area of the AI story that's really been impacted and that's more in the software space. What is that fourth company you were looking at in August? >> Yeah, this is a Cloudflare and Cloudflare was really kind of a hardware and a software story. They provide internet security, but they do it via their own hardware network. They have a distributed network of data centers around the world, which they use to operate their system in a decentralized fashion. So, whenever you're using their systems, you're using their systems with the closest data center located to you, which helps reduce latency. And so, that aspect of it not only provides security for AI, but also quick low latency real-time operability, which is critical for AI and edge computing. So, it's emerging as a very important platform for that. But even deeper within this, as a proxy for internet traffic that's handling like 20-30% of internet traffic globally every day, it is a meter on internet traffic. When you think about how we used to search for things on the internet, you type into Google, what's going on with this, and it'll give you, you know, five, six, seven websites, and you go to those websites. When you click on those websites, those websites monitor your traffic, and they can monetize it however they do it. But now today with AI, the AI is scrubbing that information for you. It gives you your answer. You don't ever go to those websites. So, then how do they monetize their money? They do that with Cloudflare. Cloudflare is able to to tag and track agentic bots, and then make them pay for the information that they're scrubbing if that's, you know, part of the part of the setup. It's the way that content providers are going to be monetizing the internet into the future. It's absolutely fundamental to the future of AI, and for that reason it's it's definitely a buy. >> Yeah, the price action on this one has been really interesting to watch. Some really big price swings on Cloudflare all of this year. They were caught up in that software story very earlier on in the year, but they've been one of the names that very quickly recovered from the the software dip that it saw early on in the year. But even since then, there's some big spikes you can see in the chart action over the last few months. What's behind some of those, you know, dramatic drops and and dramatic increases that we see on the chart? >> Well, let me ask the tug-of-war between legacy holders and new AI focused investors. People that view Cloudflare through the legacy lens is seeing the the spike in AI traffic as a blip on the radar, whereas AI focused investors see this as a secular shift, a fundamental shift in traffic that's boosting and driving revenue that's going to not only last long into the future, but accelerate over time. >> What also stands out about this one of your list of five stocks on your August buy list, this one is closest to its 52-week high. It's trading up there pretty high right now and then you look at what analysts have to say about it. They're not giving it a lot of upside right now. The recent price targets are pretty much right around where it trades today or just just a slightly above. What do you think about that as far as growth and looking at a buying point for this name? >> I think that that might be one of Cloudflare's biggest risks, just the the valuation and the market kind of getting ahead of itself, but I think that we'll see the analyst trends continue to strengthen in upcoming releases or after upcoming releases because we should see the affirmation of not only current demand for product, but also its placement and positioning for future growth. >> And speaking of upcoming releases, that's happening this week for Cloudflare. Do you think that's part of the reason we're we're near that 52-week high? It's just leading up to that earnings report and then again, a similar story to others, that risk of earnings disappointment even if it's a strong report, will it be strong enough to price in all of the growth the stock has seen over the last couple of months? >> Yeah, the market is certainly anticipating a good release, so we're definitely going to need to see a very strong report for the market to continue moving higher from where it is now. Best case scenario though, we'll get a good report, the market will pull back and present us another buying opportunity. >> Yeah, I want to talk about that strategy a little bit more for Cloudflare in August. Depending on what kind of reaction we see with earnings, when would be an entry point for you if we do see a pullback with this one? Again, depending on that earnings report reaction. >> Um right now it looks like the October 25th highs are a good trigger point, confirmed as support earlier this week. Uh so if we had another pullback, I would expect to see support be confirmed there again. >> It's a really good August playbook on this one. Again, this is one of those stronger stories that is continuing to grow, but there are other stories in the market right now that are on those massive pullbacks. And if that is what you are more interested in looking at, don't forget to look at that space article talking about the whole space sector and five names that are on massive pullbacks right now, and which ones are actually worth adding at this low point, and which ones you might want to stay away from because of the risk. Scan the QR code or just click the link right down in the description to read that article free right now on marketbeat.com. All right, Thomas, let's get to the fifth stock on the list, and this one I'm excited about. It's the small cap name on the list that's a a small stock with a lot of potential. It's one you recently talked about on the channel, but it's showing up on your buy list, which is a a good indicator for viewers, too. >> Right, Tom. That's Air Joule Technologies. Um Air Joule makes a water-from-air device that is good for dissipating excess heat, but also for creating usable water. This story is a multifaceted one. It involves AI, but also um water creation. On the AI side, these devices um are suitable for data centers that can help bleed off the excess heat that they generate by using that heat to create water that can then be used in turn for the cooling systems. Uh so they provide utility as far as efficiency, they provide utility with the water, they provide utility by reducing heat, and they're cheaper to run than traditional legacy systems. So they provide a lot of advantage for the hyperscalers. Uh they've been seeing some demand for their product. Um the story right now is the shift from development to commercialization. Um earlier this summer they locked in the design for their prime system, which is the big large system that would be um sold to data centers, and they recently sold the first two units of their core system to Kubota. They're going to be used as components in a larger water generating and treatment system intended for for municipalities and and residential applications. Really just affirming the company's positioning both for industry and data centers, but also for residential water generation. >> Yeah, there's a lot of expectations on this name. You just described the reasons why we're seeing demand and why analysts expect growth, but I want to look at how much growth they expect because right now this is a cheap stock under $5, but they're expecting it to to nearly double in the next year. Do you think those predictions are spot-on, or do you think that there's potential as we've seen with so many other names in the AI story where the analysts aren't even giving enough credit to how much growth potential a company like this could have? >> Well, I think that those estimates are pretty decent, but I think that there's a lot of potential for the company to to exceed them. I think over the next two quarters we're going to see the company really transition into its commercial phase once it gets approval from Underwriters Laboratory. Those regulatory approvals, it's going to unleash a a load of demand that's already being seen and and and and it's in its pipeline. So, I think that once we start seeing these catalysts, those analysts' targets are probably going to start start moving higher. >> Yeah, a little education piece to here on this name compared to the other names on the list. You look at their earnings reports, this one is in that spending phase. Very deeply, they're spending a lot of money right now. It is not profitable yet compared to the other companies that have a lot of revenue coming in. Their earnings reports are very very strong. What advice do you have for investors who are looking at adding this stock and knowing the risks that also come with a a pre-revenue company like this? >> Yeah, so pre-revenue companies have a lot of risk. Certainly a lot of risk and volatility in the stock price. >> [snorts] >> This stock particularly is being de-risked with its deals. It's got major corporate partners that helped derisk its manufacturing, but also its sales. Contracts and partnerships with major players that derisk its manufacturing and its sales, but also its balance sheet is pretty healthy. It did some dilutive activity over the last year, but as it stands, it's got plenty of capital to get through the end of next year, which sets it up for meeting only a small capital raise to get it through to true profitability, which is expected in 2028. So, there is a small risk of dilution, but it's minimal. It's far in the future, and it may be something the company will be able to to move past without really impacting shareholders too badly. >> And the other risk to talk about here is that you have these new solutions for the AI infrastructure story because the story is very much growing and unfolding in real time over the last couple of years. And so, there's going to be winners, there's going to be losers. How can investors evaluate stocks like Air Joule or others like it that come up as potential solutions for part of that AI build-out story? How can you find the ones that are going to be successful versus the ones that have a good idea, but then never really execute to become successful? >> All right, that's called due diligence. You have to learn what the company is, you have to research where they are in their production, their customers, their pipeline, if they're in production or not, and their balance sheet. You need to know if they've got enough money to do what they say they can do, and when and how much they expect to need to raise money, and how that might affect your investment over time. >> Such good advice as always, Thomas, and we love these monthly stock pick videos. If you want to check out the five stocks that Thomas recommended in July and how they performed throughout the month, make sure to watch that full video here. You can see the five names Thomas suggested back at the start of July.