Which AI Companies Are Suitable for “Buy the Dip” and Why

The stock market took a hit on Wednesday, putting the S&P 500 on track to break its three-day winning streak. Headlines about President Donald Trump preparing to announce tariffs on automobiles as early as Wednesday may have accelerated market losses. The S&P 500 has made a strong recovery since its March 13 low, but uncertainty remains high ahead of Trump’s expected retaliatory tariffs on April 2.

AI Stock Sell-Off:

Stocks related to AI infrastructure development were among the hardest hit on Wednesday. The reasons include concerns over tariffs, trade restrictions, and new environmental regulations from China, which may ban the use of Nvidia’s H20 chips in data centers in favor of more energy-efficient technologies. This could impact chip sales, but market reactions may be exaggerated, as Nvidia’s chips offer the highest computational power and are best equipped for heavy workloads. The impact of these regulations is also unclear, as Financial Times reports they were introduced last year but have not been strictly enforced until now.

The market remains highly sensitive to concerns over excessive data center supply. The group of companies affected includes not only chip manufacturers but also industrial firms like Eaton and Vertiv, which react with volatility to both positive and negative news. On Tuesday, Alibaba Chairman Joe Tsai warned of a potential bubble in AI infrastructure development. In response, it’s worth noting that Nvidia CEO Jensen Huang stated that new reasoning AI models like DeepSeek’s RI require 100 times more computing power than early AI models, such as those behind the first versions of ChatGPT. Nevertheless, concerns over oversupply persist.

A new analyst report from TD Cowen indicates that Microsoft has once again canceled plans for new data center projects in the U.S. and Europe. This follows concerns raised by the same analyst in February when Microsoft first began scaling back its expansion in this sector. While a company spokesperson at the time reassured that Microsoft’s $80 billion+ infrastructure investment plan remained intact, this latest report reignites fears of overcapacity. However, the report also notes that companies like Alphabet and Meta Platforms have taken on some of the leasing and capacity. This leads us to believe that Microsoft’s project cancellations are more related to its evolving relationship with OpenAI than a broader industry trend. As part of Project Stargate, OpenAI is building a closer partnership with Oracle for some of its computing needs.

If the market were oversold, we would be more inclined to buy stocks of companies involved in AI data center development, such as Broadcom or Eaton. However, the S&P Short Range Oscillator closed at +1.92% on Tuesday, indicating that the market is closer to overbought territory (above +4%) rather than oversold (below -4%). This oscillator is a reliable indicator of market momentum and helps determine whether to allocate more capital or take profits when prices appear inflated.