Chip Stocks on Sale: 3 Semiconductor Plays to Buy the Dip – InvestorPlace
Capitalize on the chip sector's dip for high-value investments
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Chip stocks pulled back following an earnings report by ASML (NASDAQ:ASML), a prominent semiconductor manufacturing equipment developer, which said it expects its bookings to see a significant 61% sequential decrease in the first quarter.
This downturn surpassed what investors had anticipated, causing concern in the semiconductor market. This slowdown in equipment purchases by foundries, that manufacture chips for companies such as Nvidia (NASDAQ:NVDA) and Apple (NASDAQ:AAPL) could indicate a potential downturn in the semiconductor industry, which is what is hurting chip stocks lately.
The semiconductor sector was further shaken by a global retreat in semiconductor stocks, prompted by profit-taking after TSMC revised its chip market growth forecast downwards. The revision by TSMC, from over 10% to 10% growth for the global logic semiconductor industry, is fueling concerns over the demand for chips used in various technologies including electric vehicles, computers, and smartphones.
With the latest pullback, let’s look at three chip stocks investors may want to buy on dips.
Micron Technology (NASDAQ:MU) produces DRAM, flash memory, and SSDs, which are essential for everything from smartphones to data centers. This positive performance has made Micron a standout in the broader chip stocks category.
Investors should use the recent pullback in Micron as an opportunity.
Micron reported an unexpected profit for its second quarter, signaling a quicker-than-anticipated recovery in the memory chip market. It also transitioned to a profit of $793 million. That was a substantial turnaround from the $2.31 billion loss reported in the same period a year ago.
The company earned 71 cents per share, defying analysts’ expectations of a per-share loss of 41 cents, according to polls by FactSet. Adjusted earnings per share stood at 42 cents, outperforming the consensus forecast of a 25-cent loss.
The company enjoyed a 58% increase in revenue, reaching $5.82 billion, which surpassed analyst predictions. In addition, Micron’s Chief Executive, Sanjay Mehrotra, attributed this success to the company’s effective execution in terms of pricing, products, and operations.
Looking ahead, the company’s revenue forecast ranges from $6.4 billion to $6.8 billion, which exceeds the consensus expectations of $6 billion. This optimistic outlook further underscores the company’s recovery trajectory in the competitive memory chip market.
Nvidia (NASDAQ:NVDA) used to be known for creating powerful graphics chips for gaming PCs and workstations. However, the unprecedented demand for high-end AI chips is what propelled the company’s market capitalization to over $2 trillion at one point.
Within a single year, Nvidia gained a 260% valuation boost, increasing its market cap by $1.6 trillion. That is more than double the combined market cap of Nvidia’s three closest competitors. Their chips accelerate tasks in AI, data science, and self-driving cars.
Nvidia shares are already up 77% but were recently trading below highs following a pullback in the chip sector. Still, investors are very likely to continue seeing Nvidia as the clear artificial intelligence (AI) winner as long as the company can maintain its ~90% market share in this market.
The company’s stock was also boosted when Citi analysts opened a 90-day positive catalyst watch on the chipmaker. According to the firm, recent supply chain checks showed that Nvidia’s visibility has extended into 1H25, which makes it a long-term core portfolio holding.
Super Micro Computer (NASDAQ:SMCI), is a big name in high-performance server tech. The company designs and sells servers, storage, and other hardware needed for data centers and powerful computing systems. As part of the broader chip stocks sector, SMCI’s role is crucial for advanced computing needs.
The company’s stock fell as much as 23% in a single day in April after the maker of servers announced the date of its third-quarter results but didn’t pre-announce results. This disappointed investors as they were hoping SMCI could opt to pre-announcer results amid better-than-expected performance in the first quarter.
Nevertheless, the SMCI’s strong fundamental profile remains intact. The selloff is more connected to heightened investor expectations than to the change in the company’s performance. In recent months, SMCI stock has rallied on the back of the generative AI boom. Investors see SMCI well-positioned amid strong demand for its AI-centric server technology.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Shane Neagle is fascinated by the ways in which technology is poised to disrupt investing. He specializes in fundamental analysis and growth investing.
Semiconductor, Technology
Article printed from InvestorPlace Media, https://investorplace.com/2024/05/chip-stocks-on-sale-3-semiconductor-plays-to-buy-the-dip/.
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