Semiconductor stocks have suffered a sharp pullback in recent weeks, wiping out more than $1 trillion in market value across the industry’s largest companies as investors questioned whether the massive wave of artificial intelligence (AI) infrastructure spending will ultimately generate returns that justify today’s lofty expectations.
The selling accelerated after global semiconductor leader SK Hynix SKHY) reported record quarterly financial results that still failed to impress Wall Street, highlighting just how elevated expectations have become for AI-related chipmakers.
Despite the near-term volatility, the fundamental AI investment thesis appears largely unchanged.
Cloud hyperscalers continue to commit hundreds of billions of dollars toward AI infrastructure, while demand for advanced graphics processing units (GPUs) and high-bandwidth memory (HBM) remains exceptionally strong.
That may leave long-term investors wondering whether this correction represents an attractive opportunity to buy two of the industry’s premier AI beneficiaries: Nvidia NVDA) and Micron Technology MU).
Image Source: Zacks Investment Research
Why the Chip Selloff May Be Overdone
The broader chip selloff appears to be driven more by valuation concerns and profit taking than by deteriorating business fundamentals.
Several catalysts combined to pressure chip stocks, including disappointing investor reactions to SK Hynix’s earnings report despite record profits, questions surrounding the pace of AI monetization, concerns over hyperscaler capital spending, and increased competition from Chinese memory producers.
Investors have essentially shifted from asking whether AI demand is real to asking how quickly enormous infrastructure investments will translate into sustainable profits.
That distinction is important.
To that point, the AI revolution has not stalled. Rather, expectations have simply become extraordinarily high after semiconductor stocks generated massive gains over the last year. Corrections of this magnitude are not uncommon following such powerful rallies, especially in one of the market’s fastest-growing industries.
From efficiency gains across enterprise operations to breakthroughs in medical treatments and potential cures, there is little doubt that AI will play a crucial role in the global economy and may ultimately transform human health and quality of life.
NVDA – The Oversold AI Leader
Although Nvidia shares have participated in the broader semiconductor correction, the company remains the undisputed leader in AI accelerators.
Its GPUs continue to power the overwhelming majority of generative AI training and inference workloads across leading cloud providers, while its CUDA software ecosystem has created a competitive moat that competitors have struggled to overcome.
Just as importantly, Microsoft MSFT), Amazon AMZN), Meta Platforms META), Alphabet GOOGL), Oracle ORCL), and numerous sovereign AI initiatives continue investing aggressively in AI infrastructure.
While investors have become more skeptical regarding the pace of future returns, very few industry observers question that AI computing demand will continue expanding over the next several years.
If anything, the recent selloff has made Nvidia stock appear undervalued while leaving its long-term growth outlook largely intact.
NVDA is now trading near its lowest forward P/E in the last decade at 21X, roughly on par with the benchmark S&P 500 and offering an enticing discount to its Zacks Semiconductor-General Industry average of 37X, despite being the clear leader in the space.
Image Source: Zacks Investment Research
Plus, Nvidia’s EPS revisions are nicely up in the last 60 days, also suggesting the recent selloff may be overdone.
Nvidia’s current fiscal 2027 and FY28 EPS estimates have risen over 4% in the last two months, with annual earnings now expected to climb 90% this year and projected to increase another 38% next year to $12.57 per share.
Image Source: Zacks Investment Research
This comes as Nvidia’s annual revenue is projected to surpass $540 billion by FY28, more than doubling from last year’s record of $215.94 billion (FY26).
Image Source: Zacks Investment Research
MU – One of the Biggest AI Winners
Micron has experienced an even steeper correction than Nvidia despite little evidence that its long-term outlook has materially changed.
The memory manufacturer remains one of the biggest beneficiaries of booming demand for HBM, an essential component powering Nvidia’s AI accelerators.
In fact, Samsung recently indicated that memory shortages could persist through 2028, reinforcing expectations that AI-driven memory demand should remain robust for years to come. Correlating with such, Micron is still benefiting from tight supply conditions and growing data center investment despite recent stock weakness.
Much of the selling appears tied to investor disappointment following SK Hynix’s earnings report rather than any significant deterioration in Micron’s own business outlook. That creates a potentially attractive setup if AI memory demand keeps accelerating as expected.
One of the biggest reasons to remain bullish on Micron is the remarkable trend in earnings estimate revisions. Over the last 60 days, analysts have raised their current-quarter EPS forecast by 41%, next-quarter estimates by nearly 48%, and full-year FY26 and FY27 projections by 24% and 53%, respectively.
The widespread upward revision trend suggests the market is still underestimating the magnitude of Micron’s earnings potential.
Rather than cutting estimates following the recent semiconductor selloff, analysts have continued raising profit forecasts at an impressive pace, reflecting confidence that AI-related memory demand and favorable pricing conditions remain intact despite near-term market volatility.
Image Source: Zacks Investment Research
More enticing is that Micron stock is trading at just 10X forward earnings, with EPS now expected to accelerate more than 790% this year and projected to climb another 113% in FY27 to an ultra-impressive $157.83 per share.
Most encouraging for long-term investors, Micron is transitioning from a purely cyclical memory manufacturer to a key enabler of the AI revolution, with secular demand increasingly outweighing traditional economic cycles.
Image Source: Zacks Investment Research
Micron’s annual revenue is projected to surge to $248 billion by FY27, representing more than a sixfold increase from last year’s peak of $37.38 billion.
Image Source: Zacks Investment Research
AI Spending Is Still in the Early Innings
Perhaps the biggest reason to remain constructive on both Nvidia and Micron is that artificial intelligence adoption remains in its early stages, as suggested by their lofty growth trajectories.
Major technology companies are committing unprecedented amounts of capital toward AI infrastructure because they increasingly view AI as a foundational technology rather than a discretionary investment.
While Wall Street may periodically question whether the returns will justify today’s spending levels, history suggests that transformative technologies often experience periods of excessive optimism followed by sharp corrections before resuming their long-term growth path.
The recent chip selloff may ultimately prove to be another example of that pattern, with NVDA producing astonishing gains of over 13,000% in the last decade, and MU skyrocketing nearly 6,000%.
Image Source: Zacks Investment Research
Bottom Line
Volatility surrounding chip stocks is likely to remain elevated as investors reassess AI valuations and await additional evidence that massive infrastructure investments are translating into sustainable earnings growth. However, the long-term demand drivers supporting advanced GPUs and AI memory solutions remain firmly in place.
For investors with a longer investment horizon, the recent semiconductor correction may represent an opportunity to accumulate shares of industry leaders rather than a reason to abandon the AI theme altogether.
Reflecting favorable earnings estimate revisions and compelling long-term growth prospects, Nvidia and Micron Technology stock are both currently sporting a Zacks Rank #1 (Strong Buy).
Beyond Nvidia: AI’s Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren’t likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
Micron Technology, Inc. (MU) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Oracle Corporation (ORCL) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Meta Platforms, Inc. (META) : Free Stock Analysis Report
SK Hynix, Inc. – Sponsored ADR (SKHY) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
5 Stocks Our Experts Predict Could Double In the Next Year
By submitting your email, you'll also get a free pivot & flow membership. A free daily market overview. You can unsubscribe at any time.