Before considering which semiconductor stocks to buy on the dip, it’s important to understand why chip stocks have been falling since the beginning of July. Consider three intertwined reasons.
First, recession concerns are back. The latest job numbers show a tightening labor market, and the July reading on inflation is due the week of August 12. Global markets are starting to believe that the U.S. Federal Reserve won’t be able to cut interest rates quickly enough to prevent a recession.
Geopolitical concerns are also bedeviling investors. The outcome of this November’s election is likely to have significant ramifications in the ways the U.S. relates to China and/or Taiwan. That could put additional pressure on inventory levels.
This means investors are starting to sell some winners either to build up cash or to rotate into other stocks. Because of the artificial intelligence (AI) trade, chip stocks have been some of the biggest winners in 2024.
But when does a sell-off become overdone? Every investor must answer that for themselves. But for a variety of reasons, the following three companies look like attractive semiconductor stocks to buy on the dip.
NVIDIA (NVDA)
NVIDIA (NASDAQ:NVDA) stock is up 111% in 2024. It’s also down 22% in the 30 days ending August 9, 2024. That the first statement is true, doesn’t make the second statement less true. Shares of NVIDIA have pulled back substantially, but is that reason to buy semiconductor stocks on the dip?
Those in the No camp would point out that NVIDIA has announced a delay in chip production. It also may be discontinuing its popular and inexpensive GeForce RTX 3060 chip. The belief is that any production delay opens the door for competitors like Advanced Micro Devices (NASDAQ:AMD) that are eager to capture market share. Many companies such as Apple (NASDAQ:AAPL) and Meta Platforms (NASDAQ:META) are actively looking for alternatives to NVIDIA chips.
But that presumes that the competition is ready with chips to take that share. It also speculates the economy remaining strong enough so that what corporations have noted as intention to spend on AI infrastructure matches what they actually spend.
While that may affect NVIDIA as much as other companies, the company and NVDA stock are well positioned to overcome any short-term impacts.
ARM Holdings (ARM)
The one-year anniversary of ARM Holdings (NASDAQ:ARM) going public is approaching. And it’s been quite a year. Shares are up 55% since the initial public offering (IPO) but are down more than 32% in the last month. A solid first quarter fiscal year 2025 earnings report may have put a floor on the sell-off. But it’s not lifting ARM stock.
To understand what could be driving this, it’s important to comprehend ARM’s role in chip manufacturing. Specifically, the company doesn’t make or produce its own chips. Rather, it’s a designer for chips and software which collects licensing fees and royalties on its architectures and intellectual properties (IPs).
In the company’s recent earnings report, it offered cautious guidance. That is, it maintained its current guidance. As noted in the introduction, that’s not what investors want to hear right now, particularly if they’re going to pay a premium for chip stocks. This could be the reason for short interest in ARM stock is up in the last 30 days.
On the other hand, about 99% of premium smartphones are powered by ARM CPUs. That should put a floor on the company’s fundamentals which makes this a buyable dip.
Applied Materials (AMAT)
If there’s such a thing as an undervalued chip stock in 2024, Applied Materials (NASDAQ:AMAT) may be it. AMAT stock is up only 37% in the last 12 months, which seems downright undervalued compared to other chip stocks. However, the stock is down more than 20% in the last month. That may signal one of the best opportunities for semiconductor stocks to buy on the dip.
Like ARM, Applied Materials doesn’t make chips, but it provides chipmakers with innovative materials and engineering solutions. In May 2023, Applied Materials announced its intention to build its Equipment and Process Innovation and Commercialization (EPIC) center. The company touts this as “the world’s largest and most advanced facility for collaborative semiconductor process technology and manufacturing equipment research and development (R&D).”
The project won’t be ready until 2026. However, the company reports earnings in mid-August. A strong report should be just what the company needs to move it higher, particularly since AMAT stock appears to have found support around $193.09 at market close on August 12, 2024.
On the date of publication, Chris Markoch did not have (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
