BTFD! These AI Stocks Are on Sale

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Long-term success hinges on seizing rare opportunities when they arise.

This time last week, the stock market’s biggest winners were rocked by the news that a Chinese startup could upend the entire AI market.

I wrote about it last Thursday, breaking down the events, clearing up the misconceptions, and revealing an unbelievable buying opportunity.

As promised, today I’ll share with you a list of stocks screaming buy.

But before I do, let me explain why now is the time to act!

Last Week’s Deep Fake

Here is a quick recap of my DeepSeek take from Thursday:

“On January 20, the same day as President Trump's inauguration, a Chinese AI start up (founded by a Chinese hedge fund manager) released a new AI model called “R1”.

The model appears to line up competitively against existing leading AI models like ChatGPT. They claim they developed the model with an investment of only $6 million and that it uses 80% less compute resources (including power) than existing models.

If this is true, what does this mean for stocks?

If you believe that they have achieved models just as good at a fraction of the cost and resources, then it means that the massive investments made in AI by technology companies have been way overdone.

The hyperscalers like Alphabet, Meta and Microsoft have potentially spent hundreds of billions of dollars when they could have spent a fraction of that. Smaller competitors can do the same for much less and take market share.

Companies that have benefited from these investments — led by Nvidia – will see huge drop-offs in incremental demand as a result.

Additionally, companies that were expected to benefit from the growth of AI and data centers will likely see less growth. This includes companies like electricity generation companies and other companies building out data center infrastructure including construction, air conditioning, etc.

If these hundreds of billions of dollars of investment have been wasted, then it is a disaster for all of these companies.

The result was an astounding loss of over $1 TRILLION in market capitalization of these leading technology companies on January 27.”

Last week, I was skeptical that this event was really as groundbreaking as the reaction would imply.

Now that more time has passed, there’s even more doubt that the stock market reaction was the right one.

DeepSeek likely has done good work but nothing at all that has changed the narrative around AI.

A Bullish Divergence

What was interesting about the stock market reaction last week was that only AI-related stocks were crushed.

Monday was one of the biggest down days in the stock market in recent history. But in the S&P 500, four stocks went UP for every one went down.

This strong positive breadth was considered a “bullish divergence,” or when an indicator or data set suggests higher prices while the assets in question lose value.

The net result was that the S&P 500 was up 0.5% by the end of the week and closed up 2.7% for the month of January.

As my colleague Greg Guenthner wrote on Friday, a strong January (up 2% or more) historically bodes very well for the rest of the year.

Here is a table from the always excellent Ryan Detrick of Carson Group with the data.

On average the stock market goes up 12.3% and is up almost 85% of the time, both significantly better than the historical averages.

There is a lot left in the year, but the setup looks good.

Buy the Dip

Here is a group of stocks in the Russell 1000 (the largest 1000 stocks in the market) that sold off on last week’s DeepSeek news.

Click to Enlarge

This group of stocks includes some of the leading companies in the stock market. Many of them have started to recover, but some are still down double digits.

We are not going to do a deep dive into any of the individual names. But I think this is a very interesting list of stocks to buy.

Almost all of these stocks have had strong charts with supportive technical characteristics. They also have had good earnings momentum.

Plus, the stocks still managed to stay above their long-term 200-day moving average despite the sell-off.

For instance, here is the chart of VRT with the moving averages.

On the chart, you can see the stock bounced right off its long-term moving average (purple line).

The stock may consolidate for a period of time, but it will likely head back near the old highs.

With stock action like this, I like to use the analogy of a marathon runner who runs into the corner of a table and gets a nasty bruise.

They are still in great shape and can go out and do a big run soon. But it is going to take some time for the pain of the bruise to fade away.

I think this analogy applies to many of the stocks in the list above, especially since this group of companies has great earnings momentum.

Here is a chart showing analysts' revisions for the 2025 earnings per share (or EPS) for VRT. The blue line is the earnings estimates and the black line is the stock price.

Rising estimates (blue line) are the single best driver of stock prices in the intermediate term. When you see estimates going up, the stock almost always follows. You can see this on the chart.

When all is said and done, I think the DeepSeek news will not change the fundamental narrative for these stocks.

So right now could be one of the best buying opportunities of the year.