These big microchip designers are offering investors a bargain buy opportunity
The stock market is in a dire situation. After the sharp drop on August 2, U.S. stock indexes continued to fall, with the Nasdaq Composite Index, which is dominated by technology stocks, and the Dow Jones Industrial Average, which is made up of blue-chip stocks, both falling by more than 1,000 points on August 5.
The benchmark S&P 500 index has fallen 5% since the beginning of August, and the Nasdaq is currently in a correction, defined as a 10% drop from a recent high.
The situation appears even worse overseas: Japan’s Nikkei stock average fell 12% on August 5, its worst one-day drop since the Black Monday stock market crash of 1987, but has since recovered.
Major European stock indexes have fallen about 5% since the start of August, and the sell-off appears to have been triggered by growing concerns that the U.S. economy is slipping into recession and the Federal Reserve may not be able to cut interest rates fast enough to turn things around.
Artificial intelligence stocks appear to be the hardest hit in this carnage, with microchip and semiconductor stocks suffering the most.
Major chip stock Nvidia (NASDAQ:NVDA) and Broadcom (NASDAQ:AVGO) shares fell 10% on August 5, and both companies are down nearly 18% over the past month. But even in the current sell-off, opportunities are bound to arise.
Here are the 3 best semiconductor stocks to buy in August 2024.
Nvidia (NVDA)
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Following a 10-for-1 stock split in June of this year and the subsequent sell-off, Nvidia shares are currently trading at $100 a share. The company’s shares have fallen 50% from their 52-week high of nearly $200, including a 20% drop since early July.
Since its stock split just two months ago, Nvidia’s market cap has fallen by more than $500 billion.
The current situation presents a great opportunity for investors to buy best-in-class technology and leading chip stocks at fair prices.
Nvidia shares are currently trading more than 40% below the average price target and “strong buy” rating that analysts have given to the stock. Rumors have surfaced that the launch of Nvidia’s latest Blackwell AI microchip may be delayed, but there has been no confirmation from the company.
Nvidia is next scheduled to report earnings on August 28th, which is also expected to be a blockbuster.
ARM Holdings (ARM)
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Even harder hit than NVIDIA in the current sell-off is Arm Holdings (NASDAQ:armShares in the British chipmaker have fallen nearly 39% last month, including a 20% plunge since the start of August.
The selloff in ARM shares was exacerbated by the company’s recent release of weak forward guidance alongside its second-quarter financial results. This bleak outlook overwhelmed the otherwise strong financial results the company reported.
Arm reported second-quarter earnings of 40 cents per share, compared with Wall Street’s estimate of 34 cents. Revenue of $939 million beat the consensus estimate of $902.7 million.
Arm’s second-quarter revenue grew 39% year over year, and executives said the company continues to benefit from rising global demand for microchips and processors used in smartphones and AI applications.
Unfortunately, Arm maintained its full-year guidance of earnings per share of $1.45 to $1.65 and revenue of $3.8 billion to $4.1 billion.
Analysts had expected the company to post profits of $1.58 billion and revenue of $4.02 billion. In addition to missing forecasts, Arm also said it would no longer report the number of microchips it would ship worldwide starting in the third quarter, news that also sent shares plummeting.
But ARM stock is worth buying even on the dip: The company’s shares are still up 85% since its initial public offering last September.
Advanced Micro Devices (AMD)
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Advanced Micro Devices (NASDAQ:Am) took a big hit both before and immediately after its second-quarter earnings report, but AMD’s 2.50% gain on August 5th, when the Nasdaq index fell 3%, or more than 500 points, is telling.
Investors clearly felt that AMD shares had fallen enough that they were worth more than their trading price: Year to date, AMD shares are down 3% and selling pressure is building.
AMD’s second-quarter results were strong, showing accelerating sales of its AI microchips. The company reported earnings per share of 69 cents, beating Wall Street’s expectations of 68 cents. Quarterly sales of $5.84 billion beat the consensus estimate of $5.72 billion.
After a strong second-quarter sales performance, AMD again raised its forecast for AI chip sales this year, saying it expects revenue to exceed $4.5 billion this year. Last fall, AMD forecast $2 billion in AI chip sales in 2024.
As of the publication date of this article, Joel Bagrol held a long position in NVDA. Opinions expressed in this article are those of the author and follow InvestorPlace.com’s publishing guidelines.
On the date of publication, the editor in charge did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
