September is historically a bad month for stocks. The ninth month of the year is the only month when the historic average performance of each of the major stock indexes is a negative number.
But if you have a long-term investing mindset, the September sell-off could present a great opportunity. Not only do the winter months bring historically strong returns, but any sell-off in stocks gives investors a chance to buy a stake in great companies at a fairer price.
Some of the biggest opportunities in the market right now are artificial intelligence (AI) stocks. Many AI stocks have rocketed higher in 2024, but the recent pullback in share prices can give investors another chance to get in on the trend before the next leg up. Three stocks in particular have caught my eye as excellent values amid the current sell-off, and all three should see sustained growth from AI spending.
Here are the three stocks I’m planning to buy if the September sell-off continues.
1. Alphabet
Many see the growth of generative AI tools as a major threat to Alphabet‘s (NASDAQ: GOOG) (NASDAQ: GOOGL) bread and butter, Google Search. The reality, as it stands today, is that AI is a major contributor to Alphabet’s growth in multiple ways, and it’s well-positioned to remain at the forefront of AI for years to come.
At its base level, Alphabet is one of three hyperscale cloud platforms that developers can use to train and deploy generative AI software. Google Cloud has seen substantial growth over the last couple of years, surpassing $10 billion in revenue in the most recent quarter. What’s more, profitability is booming, as operating income nearly tripled year over year.
But AI can also be a major contributor to the core Search business. Google rolled out AI Overviews earlier this year, using generative AI to aggregate information from multiple websites and answer search queries. Management says the feature has increased use and satisfaction. Meanwhile, advertisements above and below AI Overviews continue to convert for businesses.
As one of the leading digital advertisers, Google is also working on ways to incorporate AI into the advertising creation and buying process. Its AI tools help increase the profitability of ad campaigns over revenue-only bidding, and it can help generate thousands of iterations of an ad to optimize images and copy for various target audiences.
Alphabet also owns YouTube, Android, the Google Play app store, and a devices business, and it continues to invest in its Other Bets. Combined, it produces tons of cash to invest in the future of AI while buying back shares and paying a small dividend.
Shares currently trade at just 19 times forward earnings estimates. Meanwhile, analysts expect average annual earnings growth over 20% for the next five years, making its valuation look extremely attractive.
2. Salesforce
Salesforce (NYSE: CRM) is a leading enterprise software company with multiple offerings to help companies get the most from their sales teams and the data they generate. But sales growth has slowed considerably recently, with revenue climbing just 8% last quarter and management’s expectations for 8% to 9% growth for the full year.
That said, management is doing a great job at improving operational efficiency, and it’s using excess cash to buy back shares, leading to strong earnings-per-share growth.
But Salesforce’s investments in AI could be a catalyst to reinvigorate the business. Its users have had access to its Einstein Copilot since early 2024. The AI feature makes it easier for sales teams and service teams to use information and data from their organization to improve productivity and close deals and cases faster.
The next step with AI is Agentforce, which helps a business resolve customer service issues, employer tickets, and sales inquiries by using the organization’s existing data within the Salesforce software suite. CEO Marc Benioff pointed to multiple examples where pilot testers were resolving 90% of cases with AI agents, well above the rate of other AI bots.
Salesforce’s AI advantage stems from the data it has about a business. And while it faces growing competition, it’s unlikely to see much impact on its operations. That’s because the switching costs are extremely high. Not only would a business have to migrate sensitive data to a new platform, it would also have to retrain staff, and it risks switching to an inferior product that isn’t the industry standard.
Salesforce stock currently trades for just 24 times forward earnings. That’s a slight premium to the S&P 500, but the business should see strong earnings-per-share growth as AI sales offer high-margin revenue growth and it buys back more shares.
3. Taiwan Semiconductor Manufacturing
While there are a lot of chip designers that have seen strong results amid the rush to build bigger and better data centers, Taiwan Semiconductor Manufacturing (NYSE: TSM), also known as TSMC, is positioned to see strong results no matter who designs the chips in the next generation of data centers.
TSMC is the world’s leading chip fabricator. In fact, it accounts for the majority of spending on printing silicon chips because of its ability to stay one step ahead of the competition in its technical capabilities. If you want a cutting-edge chip, you need to work with TSMC.
Its scale creates a virtuous cycle. As it generates the bulk of the revenue in the industry, it has more money to reinvest in research and development. As a result, it’s able to come out with the next generation of technology while its competitors are still working on the last generation. That ensures it keeps the business of big tech companies including Nvidia, Apple, and just about everyone else designing leading-edge chips.
TSMC stands to gain long-term as AI matures and more and more companies compete for its limited resources. The biggest tech companies are all investing in their own AI accelerator chips, creating further demand for its advanced processes.
The stock looks like a bargain with shares trading at less than 20 times analysts’ 2025 earnings expectations. They also expect average earnings growth of over 20% for the next five years, as AI spending powers growing demand and strong margins. That makes the current price extremely attractive, and anything lower an incredible bargain.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Alphabet, Apple, Salesforce, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Apple, Nvidia, Salesforce, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
3 Incredible Artificial Intelligence (AI) Stocks I’m Planning to Buy If the September Sell-Off Continues was originally published by The Motley Fool
