US Semi Stocks Plunge Over 5%, Hinting at Buying Opportunity
US semiconductor stocks tracked by the iShares Semiconductor ETF $iShares Semiconductor ETF(SOXX)$ took a beating last week. But Bank of America's crunching of historical data says buying the dip could be smart before year-end.
Vivek Arya, a senior analyst at $Bank of America(BAC)$ Securities, warned investors in a report late Wednesday to focus on fundamentals amidst the doubts.
With President Biden considering stricter trade restrictions on semiconductor equipment and former President Trump hinting Taiwan should pay for US protection, geopolitical jitters sent global semiconductor stocks plunging by about 6.8% on Wednesday.
Amid earnings season and election uncertainty, BoA noted market volatility might stick around. But they've got stats to soothe nerves: Semiconductor stocks have "bounced back swiftly" after 26 days of 5%+ drops in the past decade, outperforming the $S&P 500(.SPX)$ over the next 3-6 months. On average, the sector rallied 19% in 3 months and 28% in 6 months post such dips.
Arya advised investors to tune out geopolitical noise and revisit fundamentals. With global growth uncertain, AI remains a robust spender. He believed top US cloud players are mapping out plans for the next 3-5 years.
"While funds shift from AI/datacenter semiconductors to industrial/automotive/consumer, this rotation lacks fundamental support and could be short-term," says Arya. For profitable niche players, current volatility creates buying opportunities.
When it comes to stock picking, BofA recommended $NVIDIA Corp(NVDA)$ $Broadcom(AVGO)$ $ARM Holdings Ltd(ARM)$ for compute and AI. They also find $ON Semiconductor(ON)$ $Micron Technology(MU)$"attractively valued."
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