AI Bubble or Deep Value? 3 Semi Stocks to Watch After Last Week’s Plunge
Is there an artificial intelligence (AI) stock bubble that’s only starting to burst, or is the latest sell-off nothing more than a healthy, much-needed correction? That’s the big question on investors’ minds as they contemplate buying the dip in previously heated growth plays that are starting to show signs of bottoming out.
Of course, only time will tell if the weakness in the names that began back in July is the start of something far worse. Given the real productivity gains to be had from AI, though, I’m inclined to believe the latest dip in semiconductor and AI names is just a correction, albeit a wildly painful one.
Either way, overpaying for growth stories or momentum can always entail short-term pain. Let’s examine three semiconductor stocks that are worth watching as they turn a corner after one of the nastiest month-long spills of the year.
Arm Holdings (ARM)
Arm Holdings (NASDAQ:ARM) shares have been nosediving alongside the semi group in recent months, shedding close to 43% of their value in around a month. That’s an excruciatingly painful crash that weighed heavily on chasers of the semi design firm.
Despite the implosion, ARM stock is still up around 80% year-to-date (YTD). So, while the crash was sudden and vicious, it wasn’t quite as sizable as the parabolic rally that preceded it. As Arm Holdings outmuscles x86 architecture in modern PCs, it moves forward with launch plans of its very own chip next year. The latest ARM stock crash has created a great entry point for investors seeking more of a front-row seat to the AI boom.
Sure, the latest quarterly royalty revenues came up short, thanks to softness in IoT. However, the long-term narrative remains impressive, especially if you believe Arm Holdings is the way of the future.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) stock has been quick to recover, with shares now up close to 15% from August lows. Undoubtedly, the $727 billion semi giant is starring at a massive $150 billion AI chip opportunity, at least according to the bulls over at JPMorgan (NYSE:JPM).
According to the big bank, the fast-recovering semi firm seems to be experiencing “accelerating AI fundamentals” along with strength in its “non-AI semiconductor business” lately.
Though it seems unlikely that growth will accelerate in an Nvidia (NASDAQ:NVDA) fashion, it’s hard not to be excited about the firm as it expands its reach in one of the most explosive markets out there. Time will tell if the chip giant has reached some sort of growth inflection point. Either way, 24.6 times forward price-to-earnings (P/E) seems way too cheap, given how the firm has positioned itself on AI.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) shares are still down 25% from recent highs after tumbling alongside most other AI and semi stocks in recent months. Though the company’s impressive new slate of Arm-powered PC chips has the potential to power growth as more people upgrade to the AI PC age, the company could lose major business from Apple (NASDAQ:AAPL) if the San Diego-based tech titan is successful with its own modem project.
Undoubtedly, Apple experienced great difficulty in swapping out Qualcomm modems for its own. The iPhone maker still hasn’t given up, though. Recently, Wolfe Research stated that an Apple modem “is indeed coming.” It’s uncertain how much progress Apple has made since it extended a new modem deal through 2026. But, there’s a big risk that another extension will be off the table come 2027.
Even if the Apple modem is ready to go in 2027 or 2028, Qualcomm has plenty of time to diversify its business to offset the impact of lost sales. Therefore, the 21.6 times trailing P/E multiple seems like a bargain.
On the date of publication, Joey Frenette held a long position in Apple. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
