AI Stock Bubble Bursting or Healthy Correction? Top Semiconductor Stocks to Watch
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. Despite the implosion, ARM stock is still up around 80% year-to-date (YTD). 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.
Broadcom (AVGO)
Broadcom (NASDAQ: AVGO) stock has been quick to recover, with shares now up close to 15% from August lows. According to JPMorgan, 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.
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. Undoubtedly, Apple experienced great difficulty in swapping out Qualcomm modems for its own. The iPhone maker still hasn’t given up, though. 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.
In conclusion, the recent sell-off in AI and semiconductor stocks may just be a healthy correction rather than a bursting bubble. Investing in companies like Arm Holdings, Broadcom, and Qualcomm could provide opportunities for investors seeking to capitalize on the AI boom. Despite short-term pain, the long-term potential for growth in these sectors remains strong, making them worth watching as they navigate through the current market turbulence.