With the generative artificial intelligence (AI) rally going up in smoke this past week, many investors may be wondering if it’s time to start nibbling on their favourite tech plays on the dip. Indeed, the AI trade has not been working out for investors who bought in this summer. And though it’s going to be impossible to pick your spots perfectly amid the latest slip in stocks, I do think that at least putting together a watchlist makes sense here.
Stocks are starting to get a bit oversold, and while we may still be in the earlier innings of the summer sell-off, Canadian investors shouldn’t hit the panic button quite yet.
Image source: Getty Images
Don’t panic! Have a plan to ride the sell-off
In this piece, we’ll check out two undervalued ways to play the AI trade. And while getting into AI stocks while the tech sector is a falling knife may entail great pain over the coming weeks and months (or maybe more), longer-term investors need not panic if they incorporate a dollar-cost averaging (DCA) strategy, which entails buying gradually on the way down.
Indeed, whenever the stock market crashes so quickly, it makes sense to spread your buying activity over many sessions or weeks. That way, you won’t be inclined to make moves on a panic.
Now, back to the AI plays. With so much damage done in recent weeks, I’d argue that it may make sense to start with such names. They’ve been in the blast zone and may have more room to run once the market sell-off reverses course.
Remember, some of the biggest up days tend to follow some of the worst down days! Though the TSX Index is down just 4% while the Nasdaq 100 is in a correction, I still find there to be great value in tech right here.
Thomson Reuters and Microsoft: 2 AI bargains to buy on the dip
Thomson Reuters (TSX: TRI) and Microsoft (NASDAQ: MSFT) are two AI plays that also happen to pay dividends. At writing, shares of TRI and MSFT boast yields of 1.4% and 0.7%, respectively. Indeed, these aren’t huge dividends by any stretch, but they are positioned to grow at an above-average rate, especially as AI tailwinds kick into high gear.
Indeed, Thomson Reuters stands out as more of an AI data play, whereas Microsoft is more of an all-around AI play, with its stake in OpenAI (the maker of ChatGPT) and numerous organic AI initiatives. Of course, there are many ways to play the AI trade on the way down.
Whether you’re looking for more of a downstream data-driven play or an upstream maker of large language models and cloud AI tech, I’d argue that both names are worth pursuing on the way down.
At writing, MSFT stock trades at 33.4 times trailing price-to-earnings (P/E), while TRI stock goes for 30.6 times trailing P/E. Though I’d not be afraid to buy both, I do view more value in the former name right here. Perhaps a DCA approach makes the most sense as negative momentum rises.
