AI stocks like Meta, Nvidia and Microsoft are sliding. Is it time to buy the dip?

On Nov 3, the US midterm elections produced a Democratic victory in both chambers of Congress, raising questions about the future of AI-related regulations. This uncertainty has led to a sell-off in shares of major US technology companies, including Alphabet, Amazon, Meta and Microsoft. However, analysts argue that the current dip in AI stocks may present a buying opportunity for those willing to assess companies based on their earnings quality, AI monetization and valuation.

For Microsoft, Azure cloud revenue increased by 48% year-over-year, and while capital expenditures were slightly overestimated, the diversified revenue base and strong performance in the commercial cloud business provide a positive outlook. Nvidia appears to be trading at a relatively low forward price-to-earnings ratio, but its exposure to the AI infrastructure cycle means its shares are more sensitive to changes in capital expenditure and customer demand.

Apple's capital expenditures remain less aggressive than its competitors, and while the stock has held up well during the sell-off, investors should consider whether the stock is overvalued. Alphabet's cloud business has seen strong momentum, with Google Cloud revenue increasing 103% to US$30.7 billion in Q3, but slower growth in its search business could pose risks to future earnings.

Amazon's diversified business streams, with Amazon Web Services contributing 18% of its revenue, provide some stability, but its long-term debt has risen significantly in recent months.

Meta, while showing a 26% year-over-year revenue increase in Q3, relies heavily on advertising returns and has reported infrastructure spending that has pushed its capital expenditure to negative free cash flow. For investors, the key is to focus on companies whose AI-related growth is backed by sustainable earnings, cash flow, and reasonable valuations, rather than simply chasing falling share prices.