The semiconductor stocks have been terrific wealth creators in recent years, thanks in part to the explosiveness of the artificial intelligence (AI) boom. Indeed, if you haven’t bought any of the semiconductor plays in these past two years, you may think it’s too late. Undoubtedly, valuations on the average stock within the industry have swollen considerably amid the AI-driven ascent. That said, not all semiconductor stocks are too hot to touch here, especially some names, most notably the semi equipment makers, continue to tread water.
Indeed, the semiconductor industry is no stranger to the boom and bust cycles. When it comes to the semi equipment makers, though, they take cyclicality to the next level. And if a big chunk of the downside can arrive well before most other semi plays.
As some top semi equipment makers continue rolling over in their bear markets, I do think investors seeking an entry point into the AI race may have a chance to pounce as we enter the final two months of the year. Of course, you’ll need to be comfortable with the amplified volatility of being in the choppiest part of a cyclical industry.
Though the future is impossible to see, I think the recent equipment demand slowdown and lowered outlooks could pave the way for a surprising upside in the new year. At their peak, some of the top semi equipment makers had too much expectation baked in.
Key Points About This Article
- ASML and LRCX are intriguing dip buys for investors seeking value in the semi industry.
- As expectations come in, the two semi equipment makers may be worth grabbing.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Now, the pendulum seems to have swung in the other direction. The big question is whether it’s overswung on the side of pessimism. In any case, I think there are bargains to be had in the space, especially with the following two names:
ASML
ASML (NASDAQ:ASML) stock has been in free fall lately, thanks in part to a forecast that Jim Cramer referred to as “horrendous.” Indeed, it’s one thing to deliver a disappointing quarter, but it’s another to guide lower for the rest of the year and into the new year.
For such a hyper-cyclical company, just the anticipation of lower orders is enough to crater the stock. The good news is that things are starting to look overdone for the Dutch maker of photolithography systems. It’s still a virtual monopoly that doesn’t have to worry all too much about competitive threats.
That said, there’s a haze of uncertainty as to when demand will pick up again. While it’s still off to the races for AI data centers, other key areas, like PC and mobile, could be in for tough sledding in the new year. In any case, ASML’s tough quarterly showing did send rumbles through the AI scene. As to whether it’s an ominous sign of where AI heads next remains the big question.
If you’re still a believer in the long-term AI boom, one has to think ASML stock’s 36% pullback is an opportunity. Shares go for 27.2 times forward price-to-earnings (P/E), a fair multiple in my view.
Lam Research
Lam Research (NASDAQ:LRCX) stock has also felt the industry pressures of late. Today, the stock is down around 33%, putting it within striking distance (7%) of its peak of January 2022. For those who missed the initial AI surge, such a level seems nothing short of compelling, especially given Lam just reported a decent quarter.
Indeed, Lam’s recent earnings beat wasn’t incredible, but the relief it caused was almost palpable, especially as it pulled the curtain on its results after ASML did. Undoubtedly, not all semi equipment makers are built the same. In fact, things are still looking brighter for Lam going into the new year. CEO Tim Archer pointed out that the firm stands out as a beneficiary of improved “NAND spending and increased customer investments,”
At 21.7 times forward P/E, LRCX stock looks like an absolute bargain. Lam is no ASML. But that doesn’t mean it can’t run into road bumps of its own, especially if demand from China ends up falling short from here.
Either way, LRCX and ASML are both cheap, oversold semi plays that look very interesting on the dip.
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