MW Nvidia and other chip stocks are set to bounce. Is now the time to buy?

By Emily Bary

Multiple analysts saw Monday's sharp semiconductor pullbacks as overdone. One said they could prove 'a buying opportunity in hindsight once the dust settles.'

Many semiconductor stocks are poised to bounce on Tuesday following a sharp selloff on fears about Chinese artificial-intelligence startup DeepSeek.

There's still fervent debate on Wall Street on how DeepSeek's advancements will impact the red-hot semiconductor sector. DeepSeek was able to build an AI model in a more cost-effective way than people had imagined. Does that mean companies will need far less computing hardware than expected, or will it fuel an explosion of AI demand now that the technology is becoming more accessible?

For now, semiconductor stocks are clawing back some of their losses - though to a relatively small degree given the scope of Monday's declines. Nvidia Corp. shares $(NVDA)$ are up 3.3% in premarket action Tuesday after losing 17.0% in Monday trading. Broadcom Inc. shares $(AVGO)$ are up 3.4% premarket after Monday's 17.4% fall, and Marvell Technology Inc. $(MRVL)$ shares are ahead 3.5% in early trading after dropping 19.1% on Monday.

Read: This man wiped $600 billion off Nvidia's valuation by marrying quant trading with AI

The stock slides Monday looked overdone, according to Robert Maire of Semiconductor Advisors, a registered investment adviser.

"It feels like the chip stocks which have been so hot for so long and had a few brushes with downdrafts finally got hit by something that was difficult to shake off because there was very little substance to go on," he wrote.

More information ultimately will emerge about the DeepSeek threat, he added, "and odds are it likely won't be as bad as presumed."

Timothy Arcuri of UBS offered that hyperscale cloud providers likely won't make major adjustments to their spending plans for this year or even next year. Meta Platforms Inc. $(META)$ "was well aware of DeepSeek's technical innovations and still guided capex up significantly this year," he wrote, referring to capital expenditures.

See also: Zuckerberg wants to spend billions more on AI. Meta investors like that idea.

The scope of Monday's declines may present "a buying opportunity in hindsight once the dust settles," Arcuri added.

Citi Research analyst Christopher Danely also has continued confidence that AI budgets will keep flowing.

"Given DeepSeek is based on the distillation technique that leverages other AI models, we would note cloud service providers are still required, which is evidence of continued strong growth in spending in AI," he wrote in a note to clients on Tuesday. "As a result, we could see a host of DeepSeek challengers which could further proliferate AI - similar to several different internet search engines before consolidation."

He doesn't cover Nvidia. But he explored which chip companies might be most exposed to challenges if AI spending slows meaningfully. First up: Broadcom, "given its 24% exposure to AI and 70% multiple expansion." Micron Technology Inc. $(MU)$ is another candidate thanks to its high-bandwidth memory business, though he said the stock's multiple expansion seems to have largely evaporated.

And AMD would be impacted, but it's complicated. The company's MI300 AI accelerator "is well suited to open AI systems, which DeepSeek uses," Danely wrote.

As for semiconductor companies that wouldn't feel much impact, he lists names like Texas Instruments Inc. $(TXN)$, Analog Devices Inc. $(ADI)$ and Intel Corp. $(INTC)$ Texas Instruments and Analog Devices play into analog markets that have been under pressure in recent years but now may be due to recover. Intel largely has missed out on the AI trend thus far.

Opinion: DeepSeek could represent Nvidia CEO Jensen Huang's worst nightmare

-Emily Bary

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January 28, 2025 09:02 ET (14:02 GMT)

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