2 Magnificent AI Stocks Down 27% and 32% That Investors Will Wish They Bought on the Dip

Heavy is the head that wears the crown. Alphabet (GOOGL 1.70%) (GOOG 1.52%), the parent of Google, and Meta Platforms (META 2.65%), formerly known as Facebook, are facing antitrust litigation regarding the ways they have maintained their dominance in internet search and social media.

Investors generally dislike uncertainty, and amid a macroeconomic environment that has become far less predictable over the past few months, the entire market has become increasingly volatile. Between that and the company-specific risks they face, Alphabet had fallen by 27% from its high and Meta Platforms had lost 32%, as of April 22.

The potential outcomes of the cases against those companies could include regulators forcing them to sell or spin off key business assets. That said, shying away from these top artificial intelligence (AI) companies now could prove to be a mistake for investors.

Here’s why investors may want to buy this dip on Alphabet and Meta Platforms.

Technology empires may shrink

Alphabet and Meta Platforms are among the world’s most powerful technology leaders. Each generates billions of dollars in annual ad revenue from its core businesses. Alphabet dominates the internet with its Google search engine and software ecosystem, while Meta’s social media apps, including Facebook, Instagram, WhatsApp, and Threads, collectively reach 3.35 billion daily active users.

However, antitrust regulators have stepped in due to those companies’ strangleholds on their respective niches within the tech sector.

Alphabet has already lost two antitrust cases, one involving Google Search and another relating to its anticompetitive practices in online advertising. Now, Alphabet and regulators will argue in court, and judges will determine what actions Alphabet may need to take to remedy its violations. Alphabet may be ordered to sell its Chrome web browser, or to cease paying Apple the billions of dollars a year it spends in the deal that has made Google the default search engine on iPhones’ Safari web browser.

Meanwhile, the Federal Trade Commission’s antitrust case against Meta Platforms over its aggressive tactics to either acquire rivals like Instagram and WhatsApp or eliminate them is just starting. If the company loses, some speculate that it may be ordered to spin off or sell those apps.

Antitrust remedies might not be that bitter

The idea of a breakup is scary, but investors could be overreacting to the headlines. Both companies have layered multiple products and services to build technology ecosystems with powerful network effects.

Suppose the courts blocked Alphabet from paying Apple for search engine placement on its Safari web browser.

Now, Alphabet decided it was worth paying tens of billions a year to make Google the default search engine in Apple’s Safari browser. Still, it is unlikely that Google Search would collapse if that arrangement were to end. Safari is just one of Google’s many distribution channels, and has only a 17.5% share of the world’s web browser market.

Google’s Chrome is the global leader, with a 66% share. Even if Alphabet were to sell or spin off Chrome, it is tightly integrated with Google’s productivity apps, such as Gmail and others. In other words, it would be difficult to eliminate the network effects Alphabet benefits from unless regulators dismantle the company. That seems unlikely given how complicated it would be. Meanwhile, the Chrome unit on its own could struggle to generate revenue without its Google connection, as it’s a free product.

The situation around Meta is a little trickier because there aren’t as many layers to its ecosystem. If it had to sell Instagram, WhatsApp, or both, that would be a sizable blow to its empire. The good news is that while Meta has leveraged its family of apps to boost each other, such as by letting users cross-post from Instagram and Facebook to Threads, the big three apps — Facebook, Instagram, and WhatsApp — still function independently of each other.

Therefore, Meta losing one wouldn’t necessarily diminish the others. A spinoff would leave Meta smaller, but could also unlock shareholder value if an independent, publicly traded Instagram or WhatsApp thrives.

The antitrust risks are real, but investors shouldn’t panic. There is no rush to act, especially when each company’s AI efforts might create new core businesses down the road.

Both of these AI stocks are better bargains now

The AI trend could someday be the more important catalyst for both companies, and that seems unlikely to change regardless of how things turn out with these antitrust cases. Experts such as those at PwC believe AI technology could create a multitrillion-dollar economic opportunity over the next decade and beyond.

Alphabet’s AI opportunities include:

• AI-fueled growth in the cloud;
• An expanding autonomous ride-hailing business in Waymo;
• Quantum computing development;
• Competitive AI models (Gemini) for consumers and enterprises.

Meta doesn’t own a public cloud platform, but it does have:

• A broadening hardware business with Meta Quest headsets and AI smart glasses;
• An open-source AI model (Llama) with over 1 billion downloads;
• AI integrations throughout its social media apps and existing ad business.

The dips in these stocks have left them trading at reasonably compelling valuations. Alphabet trades at a price/earnings-to-growth (PEG) ratio of just 1.2, and Meta’s is 1.4. True, the generally agreed upon view is that a stock is fairly valued with a PEG ratio of 1, and lower is better. And sure, there are some potential risks to be wary about with both of these tech giants. But would an investor be better off buying shares of Walmart, a mature business trading at almost 40 times earnings and at a PEG ratio of 5.1? I don’t expect Walmart’s stock to outperform either Alphabet or Meta Platforms over the next five years unless there is a dramatic decline in the tech companies’ growth and competitive advantages.

GOOGL PE Ratio data by YCharts.

It can be easy to get overanxious about investment risks when the markets are already shaky. However, in the cases of Meta Platforms and Alphabet, it’s way too early to panic about what these antitrust cases could mean, and even aggressive court-mandated remedies could benefit shareholders. With that in mind, I’d recommend tuning out the noise and taking a long-term view on two of the world’s most powerful technology companies.