When most investors think about a stock market correction, they think about fear, and this past Thursday had plenty of it. The Nasdaq Composite fell 5.5% on Nov. 5, leaving it 12% below its Oct. 6 record close and officially in correction territory.
Chip stocks took the worst of it. The Philadelphia Semiconductor Index plunged more than 12% in a single day, on fears that the new Democratic majority in Congress will slow the build-out of AI data centers.
Missed AI’s “Act 1”? Act 2 Could Be 16x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
Image source: Getty Images.
Let’s be clear. Although it’s certainly not fun to watch the value of your investments plunge, corrections like this are a normal part of investing, even if they never feel that way. And it’s important to emphasize that nothing has actually changed about AI demand, and no new rules have been enacted. That’s why I think the sell-off created a buying opportunity in three of the most notable AI leaders.
1. Nvidia
Nvidia (NASDAQ:NVDA) is an AI stock that needs no introduction, but it hasn’t been this cheap in a while. In its most recent quarter, revenue more than doubled, up 106% year over year to more than $96 billion, and data center revenue grew 117% to $89 billion. Management guided for about $108 billion in revenue for the current quarter, and that forecast assumes no data center revenue from China. Gross margin was 75%, which shows Nvidia still has enormous pricing power.
Even so, the stock closed at $181.60 on Thursday, 24% below its October record, and trades for less than 16 times forward earnings. Nvidia is also putting its cash to work, with a $235 billion total buyback authorization following a $150 billion increase in September. The next big test comes on Nov. 17, when Nvidia reports its third-quarter results, but this could be an opportunity to add the chipmaking leader to your portfolio at a discount.
2. Broadcom
Broadcom (NASDAQ:AVGO) designs custom AI chips for some of the world’s largest tech companies, as well as the networking gear that connects them. Its AI semiconductor revenue soared 221% year over year to $16.7 billion last quarter, and management expects that number to reach $21.7 billion this quarter. CEO Hock Tan said demand for custom AI accelerators and networking “continues to be very strong.”
Despite that, Broadcom fell more than 10% on Thursday and is roughly 40% below its June record close. At about 17 times forward earnings, with $13.7 billion in quarterly free cash flow and a growing dividend, it’s one of the more reasonably priced ways to own AI infrastructure. Total revenue is expected to grow 93% this quarter to about $34.8 billion, which is incredible growth, especially for a company of Broadcom’s size.
