AI-related stocks have rallied the hardest over the past two years. So it’s not surprising that they’ve also declined the fastest in the latest market pullback. However, AI stocks have sold so quickly and so heavily that they’re now looking oversold.
Markets could see anything from a V-shaped bounce, to a gradual recovery to new all-time highs if the news cycle gets less pessimistic. In the short-term, a bounce in stocks could be an ideal time to buy some AI plays.
That especially applies to companies moving in the AI space that are beating on earnings right now.
Software player Adobe (ADBE) has long been misunderstood as an AI player, but the company just beat earnings and has increased confidence in its ability to perform.
Adobe shares now trade at a reasonable 22 times forward earnings.
Given that earnings growth has been 192% over the past year, Adobe looks undervalued and could potentially swing higher in the months ahead.
Action to take: Investors may want to buy a small position in Adobe here for a short-term rebound in the coming months, and use any market weakness to add to that position.
For traders, Adobe shares are well into oversold territory and could see a bounce higher shortly. The May $430 calls, last trading for about $4.90, could see mid double-digit returns in the weeks ahead. As a rebound trade, look to take a quick profit.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.