2 Tech Stocks and AI Bets to Buy at Bargains Amid the Market Selloff

Today’s episode of Full Court Finance at Zacks explores where the stock market stands and dives into why the selloff offers long-term investors great opportunities to buy best-in-class tech stocks and artificial intelligence (AI) firms at big discounts. The episode looks specifically at Cadence Design Systems, Inc. (CDNS) and Vertiv Holdings Co (VRT) to see why the stocks might be worth buying down at least 20% as they find support near key moving averages.

Stock Market Selloff Creates Opportunities

Wall Street bulls held their ground at the Nasdaq’s 200-day moving average twice this week. Buyers stepped in near the key long-term level, which is also near the tech-heavy index’s 2021 peak, based on signs that big tech has already gotten the summer haircut it needed.

Some investors fear a larger selloff is around the corner. There might be more selling and volatility. But the market has already cooled off substantially, with tons of big tech stocks and other first-half winners down 20% or more from their highs.

The Nasdaq tumbled from overbought levels in terms of the Relative Strength Index (RSI) (bottom part of the chart)—used to help determine if a stock or index is too expensive or cheap based on its recent performance—to heavily oversold.

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Therefore, investors with long-term horizons are best served to start buying into top tech stocks now since calling the exact bottom can only be done in retrospect.

If the strong tech stocks fall more, savvy investors with their eyes on the horizon will simply jump at the chance to buy more at even lower prices.

Buy Cadence Design Systems, Inc. (CDNS) Stock Down 20% from its Highs?

Cadence’s (CDNS) modeling and computational software help tech companies design chips and other vital technologies. The growing complexity of semiconductors needed for AI, hyperscale computing, and beyond transformed Cadence into an invaluable partner for many chip companies and a vital part of the semiconductor ecosystem.

Nvidia (NVDA) and other giants depend on Cadence to simulate their cutting-edge semiconductors before they are made. Cadence provides investors the chance to buy into the booming world of AI and semiconductors, without picking winners.

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Cadence stock has skyrocketed over 1,400% in the last 10 years, blowing away the Zacks Tech sector’s 270%, Taiwan Semi’s 700%, Apple’s 770%, and plenty of other tech and chip standouts. Cadence shares continued their outperformance over the past three years, up 78% vs. Tech’s 12%, despite its 20% fall from its June highs.

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Cadence dropped after it grew overheated and its earnings estimate revisions dipped. Yet CDNS’ earnings per share outlook remains well above where it was this time last year and it lands Zacks Rank #3 (Hold).

Cadence is projected to grow its EPS adjusted by 14% in 2024 and 18% in 2025 on 13% revenue growth in both years. Wall Street craves this kind of steady growth, with 10 of the 13 brokerage recommendations Zacks has at “Strong Buys.”

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CDNS stock emerged 7% on Thursday as the bulls attempt to push Cadence back above its 50-week moving average. Cadence stock hasn’t traded below its 50-week for very long over the last decade outside of the 2022 tech downturn.

Cadence’s bounce took it above its most oversold RSI levels since early 2022. CDNS trades 32% below its average Zacks price target and 20% below peaks. On top of that, it is trading near its 10-year median in terms of forward earnings.

Is Vertiv Holdings Co (VRT) Stock A Buy Down 33% from its All-Time Highs?

Vertiv (VRT) is a picks and shovels AI investment that will grow alongside artificial intelligence no matter which companies eventually dominate the industry. Vertiv’s power, cooling, and IT infrastructure solutions and services operate across data centers, communication networks, and beyond.

Vertiv partnered with the current king of AI, Nvidia, to solve future data center efficiency and cooling challenges. VRT’s CEO recently referred to Vertiv as “the connective tissue between IT and facilities in the data center.” The company’s essential nature transformed Vertiv into an under-the-radar Wall Street star during the last few years. VRT stock has soared 485% vs. Nvidia’s 515% over the past two years.

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Vertiv topped our Q2 EPS estimate on July 24 and provided upbeat sales and profit guidance, pointing to “increased scaling of AI deployment.” VRT is projected to grow its revenue by 13% in 2024 and 2025, while boosting its adjusted EPS by 46% and 28%, respectively. Chief executive Giordano Albertazzi noted that VRT is “just beginning to tap the tremendous potential of our unique position in the industry.”

Vertiv’s improved EPS outlook helps it earn a Zacks Rank #1 (Strong Buy). On top of that, all 11 brokerage recommendations Zacks has for Vertiv are “Strong Buys.”

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Vertiv stock has climbed around 45% YTD, yet it trades roughly 33% below its highs and 53% below the average Zacks price target. VRT is finding support near its 200-day and 50-week moving averages after popping 6% on Thursday.

On the valuation front, Vertiv trades at a 9% discount to the Zacks Tech sector and 44% below its highs at 22.3X forward 12-month earnings.

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