Chip stocks have bounced back from their Blue Wave blues, but that doesn't mean it is too late to get in on the action.
The technology sector fell hard last week after the results of the 2026 midterm elections rolled through. Wall Street was grappling with the possibility that a wave of newly elected Democrats in state and national races would places additional restrictions on data center construction when they take office.
Chip stocks were hit particularly hard. Fewer new data centers would lessen the need for the hardware that fills those sites. The VanEck Semiconductor ETF, which holds chip stocks like Nvidia and Broadcom, plunged 11% on Nov. 5 to $447.73.
Chip stocks have gotten their mojo back. The ETF has risen 15% since Nov. 5. The fund is still down 23% from its all-time closing high of $668.91 on June 22.
Semiconductor stocks look cheap by one of the most widely used measures. As of Monday's close, the VanEck Semiconductor ETF (Ticker: SMH) was trading at 15.7 times forward earnings, below its 5-year average of 23.2 times.
"The last time the NTM PE for the SMH was this low was at the end of 2022 when the whole AI trade began," Melius Research analyst Ben Reitzes writes. ChatGPT launched in November 2022, setting off the AI spark in the stock market.
Chip market bears see it differently. They say the semiconductor companies have already seen massive earnings growth, and any slowdown to data center businesses would hit their stocks hard. The worry is that aggressive future earnings estimates would fall sharply if data center projects get derailed, dragging share prices along with them.
That said, demand for compute continues to massively outpace supply.
Reitzes of Melius says there are multiple tailwinds ahead that could propel chip stocks forward. This includes the highly anticipated initial public offering of Anthropic.
"If the Anthropic IPO goes well next week, investors could get more excited on a few names leveraged to Dario's huge obligations -- including Broadcom, AMD, and Arista," writes Reitzes. (Dario Amodei is the Anthropic CEO.) These "huge" spending expectations include the nearly $900 billion short- and long-term supply commitments for chips and compute capacity Anthropic disclosed in its S-1.
Broadcom trades at 16.3 times earnings expected over the next 12 months, below the five-year average of 23.2 times. Nvidia trades at 12.5 times forward earnings, well below its five-year average of 33.7 times.
The AI darling has a lot of room for growth ahead as demand for its chips remains high. However, "the stock is wrestling with other issues," says Reitzes.
The Wall Street Journal reported Wednesday evening that Nvidia is preparing to oust Nvidia co-founder and CEO Jensen Huang after allegations that he was the target of an alleged foreign intelligence effort. Huang had a romantic relationship with Alice Huang -- no relation -- whom U.S. officials suspect of sharing information with China's government. Already, the potential of leadership shake-up at Nvidia has spooked shareholders this week.
Positive tech news from elsewhere this week has helped push the sector higher. Management for neocloud CoreWeave provided commentary that assuaged some tech fears about increased AI regulation on Tuesday night.
"We do not anticipate any impact from the seismic regulatory shift that has occurred," CoreWeave CEO Michael Intrator said on the earnings call. "We believe that based on the permitting status, as well as the construction status of the data centers that our backlog is going to go into, we are very comfortable with our pipeline."
Hyperscalers also seem keen on continuing the AI buildout, just with some changes to how they approach it. Alphabet's Google announced after the congressional midterms last week that it is building its first data center in Wyoming, a state still dominated by Republicans. Google says it will pay for 100% of the power the facility uses and it will be air-cooled to minimize strain on local water resources.
The AI buildout will continue, and even after a rebound from a big dip last week, chip stocks continue to look attractive.
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