The Nasdaq-Composite closed in correction territory on Friday, August 2, as investors reacted to a disappointing jobs report. A correction occurs when an index falls at least 10% from its record high, but the Nasdaq is now down 13%, and several stocks have fallen even more.

Shares of alphabet (GOOGL 1.94%) (GOOG 1.92%) And Super-microcomputer (SMCI 3.50%) are down 17% and 60%, respectively. Nevertheless, both stocks are trading at reasonable valuations, and history tells us that the Nasdaq correction could reverse quickly. Since 2010, the Nasdaq has returned an average of 21.9% in the 12 months following its first close in correction territory.

That’s why it’s worth buying Alphabet and Supermicro today.

1. Alphabet

Alphabet offers advertising and cloud services. Its subsidiary Google is, according to eMarketer, “the largest digital advertiser in the world, accounting for 27.7 percent of revenue.” The foundation of this success is Google Search, but the company has six other products with more than two billion monthly users that support its ability to source data and display relevant ads across the internet.

Google is also the third largest provider of cloud infrastructure and platform services (CIPS), but with a clear gap to Amazon And MicrosoftHowever, the company has been able to gain market share, partly due to its strength in artificial intelligence (AI). Forrester Research has recognized its leadership in AI infrastructure and large language models. Google accounted for 12% of CIPS spending in the June quarter, up from 11% a year ago, and that number could continue to grow as AI spending increases.

Alphabet reported solid financial results in the second quarter with just one blemish. YouTube’s advertising revenue fell short of estimates, but the company still beat analysts’ expectations for both revenue and earnings. Total revenue rose 14% to $84.7 billion and GAAP net income rose 31% to $1.89 per diluted share. Still, the stock saw a sell-off after the results were announced and the price continued to decline.

Google is gradually losing market share in digital advertising, but the company could curb or reverse that trend through product innovations. For example, generative AI overviews are driving engagement with Google Search, and AI-powered advertising tools are increasing conversion rates and streamlining workflows for media buyers, said CEO Sundar Pichai. These innovations are creating new monetization opportunities.

Wall Street expects Alphabet to grow earnings 17.4% annually over the next three years, making the current valuation of 22.7 times earnings look pretty cheap. More specifically, those numbers translate to a price-to-earnings-to-growth (PEG) ratio of 1.3, which is a discount to the company’s five-year average of 1.5. Investors should feel comfortable buying a small position in this growth stock today.

2. Super-microcomputer

Supermicro manufactures high-performance computing platforms for cloud and enterprise data centers, including individual servers and storage systems as well as complete rack-scale solutions that integrate compute, storage and networking to provide customers with a turnkey solution for workloads such as data analytics and AI.

Supermicro has established a leadership position in AI servers thanks to its in-house manufacturing capabilities and a unique building block approach to product design. The company conducts most of its research and development in-house and uses cross-product electronic building blocks to quickly build a wide range of servers using the latest chips from suppliers such as NVIDIA.

This allows Supermicro to bring new technologies to market faster than competitors, typically in two to six months. This has made the company the first choice for AI servers and is expected to gain market share. Bank of America Analysts estimate that Supermicro will account for 17% of AI server revenue by 2026, up from 10% in 2023. However, KeyBanc’s Tom Blakely believes the company could reach 23% market share by 2025.

Supermicro reported mixed results for the June quarter. Revenue rose 143% to $5.3 billion on record demand for AI infrastructure. However, investments in direct liquid cooling (DLC) technology led to a decline in the company’s gross profit margin, causing non-GAAP earnings to rise only 78% to $6.25 per diluted share. However, management expects gross profit margin to normalize by year-end as DLC shipments reach a certain level.

Looking ahead, JPMorgan Chase expects AI server spending to increase six-fold between 2023 and 2028. Supermicro is set to benefit greatly, not only because it can bring AI-optimized servers to market quickly, but also because it has established itself as an early leader in DLC technology. Demand for liquid-cooled servers is set to rise sharply in the next few years as they lower operating costs by reducing data center power consumption.

Wall Street expects Supermicro to grow its adjusted earnings by 40% annually through fiscal 2026. This makes the current valuation of 23 times adjusted earnings seem quite cheap.

However, Supermicro’s shares could fall even further if the company misses earnings estimates in the future. Investors who can live with that risk should buy a small position today.