The recent AI stock meltdown was primarily driven by a margin unwind instead of weak fundamentals. More than 3% of South Korean adults received margin calls in July, with commonplace 500% margin loans getting wiped out. These investors focused heavily on AI stocks, especially SK Hynix and Samsung.
It then came out that Leopold Aschenbrenner’s hedge fund, Situational Awareness LP, had to sell off all its holdings due to a margin call. His market-beating returns came down to picking the right AI stocks and using significant leverage. The recent correction cascaded into steep losses as Aschenbrenner looks to raise funds.
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The fact that the margin unwind is a major catalyst should give AI stock investors a breath of relief. Fundamentals aren’t the problem. In fact, they’re getting better. As the margin unwind calms down, these three stocks look promising.
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Alphabet
Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) operates the software backbone of the AI boom thanks to its cloud platform. This platform helps companies run applications, create AI agents, and enhance online security.
This part of the business surged by 82% year over year, with AI-focused services seeing heightened demand. That helped the company report 24% year-over-year overall revenue growth in the second quarter, with Google and YouTube continuing to gain market share.
Alphabet has multiple AI segments that are in the early stages of growth. The Gemini App reached 950 million monthly active users, and Waymo vehicles continue to drive people in various U.S. cities.
Alphabet has a significant lead in the autonomous vehicle race, which could prove extremely valuable as the industry develops. Grand View Research projects an annualized 20.2% compound annual growth rate for the autonomous vehicle market through 2033.
Micron Technology
Micron Technology (NASDAQ: MU) established itself as the leading provider of memory chips, just as Nvidia made a name for itself with graphics processing units (GPUs). The dip has pushed Micron to a forward price-to-earnings (P/E) ratio of 5.6, which is one of the lowest valuations you will find in the tech sector.
That attractive valuation comes with revenue that has more than quadrupled year over year, along with guidance implying more than 20% sequential growth in its upcoming fiscal 2026 fourth quarter.
Micron has also secured multi-year agreements with its customers, giving it clear revenue visibility and minimizing the risk of a memory chip bust cycle. The fear of the cyclical nature of Micron’s business has rattled some investors, but those long-term deals and a forward P/E ratio of 5.6 make the stock look like a bargain.
Nebius Group
Nebius Group (NASDAQ: NBIS) has been hit harder than the other two stocks due to the margin unwind. It represented slightly more than 40% of Aschenbrenner’s total portfolio before margin calls forced him to liquidate all his positions.
Naturally, there’s more to Nebius than being Aschenbrenner’s former top holding. The neocloud company offers essential compute for hyperscalers with AI ambitions. A five-year $27 billion deal with Meta Platforms highlights the quality of Nebius’ business and how quickly annual recurring revenue can grow.
Nebius is starting to realize revenue from its contracts. Sales reached $399 million in the first quarter, which represents a 684% year-over-year improvement. The company’s sales are built on annual recurring revenue, which offers clear revenue visibility.
That revenue is just the beginning. Nebius told investors that it is on track for up to $3.4 billion in revenue this year. Furthermore, it expects to close out the year with $7 billion to $9 billion in annual recurring revenue.
Nebius also told investors that it is aiming for more than 4 gigawatts of contracted power by the end of the year. That’s a big jump from the 3 gigawatts of contracted power Nebius told investors to expect in February. This rising projection reflects the growing demand for power and compute.
Nebius has established itself as a leader in the neocloud industry. As it constructs more data centers and secures long-term deals with tech giants, its annual recurring revenue should continue to grow.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.
