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A lot of AI chip stocks on the Nasdaq have fallen significantly in recent months. Believe it or not, many names in this space are now down more than 50% from their 2026 highs.
Could we be looking at a golden buying opportunity? Let’s discuss.
Massive falls across the chip sector
Many of the AI chip stocks peaked around late June. Since then, the trend has generally been down.
We can see this in the iShares Semiconductor ETF. It hit an all-time high on 22 June and has since fallen almost 40%.
Zooming in on individual chip names, the losses have been much larger in many cases. Memory stock SanDisk, for example, has fallen from $2,355 to $835 – a decline of 65%.
Chip manufacturing equipment specialist Lam Research is another name worth highlighting. It has dropped from $439 to $200 – a fall of 54%.
My take on the crash
Personally, I reckon there’s a golden buying opportunity after such falls. And I’m not just saying that – I’ve been buying chip stocks for my own portfolio over the last week.
Sure, there are risks around a slowdown in data centre spending. Especially after the Democrats secured victory in the midterm elections in the US.
But the way I see it, AI is here to stay – the genie isn’t going back in the bottle. To my mind, data centres will continue to be built, whether it’s in the US or somewhere else.
And I reckon valuations in the chip space are now looking attractive, particularly after the extreme falls across the sector last week. Taking a three-to-five year view, I see the potential for attractive returns.
One stock I bought
One position I added to last week was KLA Corp (NASDAQ: KLAC). It specialises in process control and yield management solutions for the chip industry so it’s essentially a ‘picks-and-shovels’ play on the sector.
Back in late June, it was trading above $300. Last week, however, I was able to buy some shares just above $150.
At that price, the stock was trading on a price-to-earnings (P/E) ratio of about 24, falling to 19 using next year’s earnings forecast. I think that’s good value for this name.
Because not only does it play a crucial role in the chip sector but it’s also highly profitable. Additionally, it’s growing at a strong rate – recent Q1 earnings showed year-on-year revenue growth of 29%.
“The September quarter reflected continued strength in KLA’s leading market position in process control as growing semiconductor complexity drives more stringent requirements. We expect momentum across our business to continue into the December quarter, and we are positioned to deliver significant growth in calendar 2027.”
KLA Corp Q1 Fiscal 2027 earnings
Now, if we were to see a major slowdown in AI spending, this stock could experience further weakness. Another risk is lower demand for memory chips as a large chunk of KLA’s revenues come from memory chip process control.
Taking a long-term view though, I see quite a bit of potential. I reckon the stock is worth a closer look today.
Should you invest £5,000 in KLA right now?
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Edward Sheldon owns shares in Nasdaq, Lam Research, and KLA Corp.
This story originally appeared on Motley Fool
