Jim Cramer believes that chip stocks have experienced an excessive sell-off, and he sees an opportunity for investors to buy on the dip. He pointed out that the reasons for being bullish on this sector earlier in the year are still valid. The semiconductor exchange-traded fund SMH, for example, has fallen over 18% from its July highs but remains up more than 25% year-to-date.
Cramer attributed the recent pullback to concerns about declining enterprise spending on artificial intelligence and worries over a potential recession before the Federal Reserve cuts interest rates. Nvidia’s recent quarter beat estimates but didn’t impress investors accustomed to massive outperformance, leading to fears that the AI boom may be short-lived. However, Cramer argued that Nvidia’s results reflect supply limitations rather than demand issues, maintaining that the AI boom is still “very real.”
Cramer highlighted several stocks in the chip sector worth considering:
- AMD: Cramer praised AMD’s solid demand and performance, acknowledging its strong position in the semiconductor space.
- Micron: Cramer sees Micron as a leader in memory chips and considers the stock undervalued based on next year’s earnings estimates. The need for memory in data centers presents a significant growth opportunity.
- Arm: With licensing royalties providing steady revenue, Arm has seen its stock soar since its IPO. The stock got a further boost after reports indicated Apple would use Arm’s chip design for the iPhone 16.