2 Growth Stocks Down 20% and 82% to Buy Right Now

Artificial intelligence (AI) has been a major growth driver for big tech companies, sending their share prices to new highs this year. But investors can still find stocks trading at discounts that are poised to cash in on this opportunity.

Below are two businesses seeing bright shoots of growth in data centers and software that could lift their stock prices out of a recent slump.

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1. Texas Instruments

Texas Instruments (NASDAQ: TXN) has been around for about a century. It has specialized in making chips for consumer electronics, cars, and other industrial applications, but the strong growth it is starting to see in data centers could lift the stock after falling 20% below its previous high.

This has been a very well-managed semiconductor business for many years. Texas Instruments has historically generated high margins, reflecting a solid competitive advantage in making analog and embedded chips for specialized tasks like power management. The stock is up 355% over the last 10 years, assuming all dividends paid were reinvested in more shares.

However, the company has fallen on hard times in the past few years. Four out of five markets it operates in are in the process of recovering, while demand in the automotive market remains weak. After nine consecutive quarters of revenue declines, it has now reported back-to-back quarters of year-over-year growth. Revenue grew 9% quarter-over-quarter in the second quarter.

You have to dig deep into the company's Q2 earnings call to find what might be the most important nugget of information. On the very last question from Wall Street analysts, management mentioned a major growth opportunity unfolding in the data center market. Growing investment in AI infrastructure drove the company's data center sales up about 50%, making it the company's fastest-recovering market.

The strong demand in the data center space validates the company's competitive advantage in making analog and embedded chips that handle power conversion and signal processing. Analysts expect the company's total revenue to grow at an annualized rate of 10% over the next four years, and growth in the data center space could play a key role in the company's future growth. This is expected to drive a sharp rebound in free cash flow from $1.5 billion in 2024 to nearly $10 billion by 2029.

Growing free cash flow will support the company's high dividend yield, which is currently 3% at the time of writing, and support solid shareholder returns.

2. Unity Software

Unity Software (NYSE: U) provides software tools for making and monetizing games. It's used by game developers for all the major platforms, including mobile, console, PC, and extended reality devices. The stock is up 62% this year, as a new management team engineers a turnaround, but it's still trading over 80% below its previous peak.

CEO Matthew Bromberg called 2025 an "inflection point" for the business. Revenue of $441 million is well below the previous high of $609 million in Q4 2023, but the most recent quarter's revenue grew slightly over the previous quarter and shows stabilizing performance.

Unity has gotten more efficient and made investments in AI tools that could drive sustainable growth. Its new AI-powered ad platform, Unity Vector, will be a catalyst. Management noted that this new platform has already far exceeded expectations.

Unity Vector is delivering on its promise to boost the number of downloads and the number of quality users who spend more on in-app purchases for mobile game creators. This ad platform is leveraging valuable data Unity has on user behavior that provides it a competitive advantage.

Management believes it is one of just a few companies that stand to benefit from the integration of AI with digital content creation. Its new Unity 6 game-building software now lets developers create and edit their virtual worlds with simple text prompts. This has been a very successful launch, with 6.6 million downloads to date, up 50% from the previous quarter.

Analysts expect the company's free cash flow to grow at an annualized rate of 25% through 2029. That level of growth will increase free cash flow from $286 million in 2024 to $866 million by 2029. Unity Software's market cap of just $15 billion implies a conservative multiple of forward free-cash-flow estimates, indicating the shares are undervalued.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Texas Instruments and Unity Software. The Motley Fool has a disclosure policy.