An analyst identified technology stocks that have been unfairly punished. Should you buy them?

William Blair analyst Sébastien Naji believes that the stocks of some technology companies were unfairly hit during the market crash, according to MarketWatch. Amid concerns about the sustainability of the artificial intelligence boom, investors were indiscriminately selling shares of hardware manufacturers and software developers, according to Naji.

The iShares Semiconductor ETF, which tracks the performance of U.S. semiconductor stocks, fell 17% in October, marking a 28% decline from its June peak. During the first trading session of November, the Nasdaq 100 index entered a technical correction.

The analyst acknowledges that the shift in sentiment is entirely understandable: Tech stocks recently soared to record highs, while the market remains skeptical about the monetization of AI, the ability of tech giants to finance infrastructure development, and concerns over the sharp rise in the cost of capital. However, according to Naji, following the sell-off, the stock prices of a number of companies have diverged significantly from their fundamentals.

— One of the stocks selected by the William Blair analyst is Silicon Motion Technology, a manufacturer of flash controllers, whose stock price has fallen 26.1% over the past month. Demand for the company’s chips, which manage data transfer between devices such as servers with NAND flash memory, has surged, Najee said.

All 13 analysts covering this company's stock recommend buying it, and the average price target suggests a 93% upside from the most recent closing price.

— Nazhi also sees an “attractive risk-reward ratio” for Credo Technology, which supplies high-speed data communication components for AI data centers. The company’s stock price has fallen 29% over the past month and has gained only 5% year-to-date.

21 out of 22 analysts recommend buying these stocks, while one maintains a neutral stance. Wall Street's average price target is 100% higher than the current price.

— In addition, the analyst highlighted Arista Networks, a manufacturer of switches and routers for AI data center networks, and Monolithic Power Systems, a manufacturer of power management systems, both of which have also “fallen to attractive levels.” Both stocks have a history of outperforming the market and have ties to clients outside the AI data center sector, he added. Arista lost 18.4% over the month but is up 29% for the year. Monolithic’s stock price has also fallen by about 18.1% over the past month, but remains up 33.7% year-to-date.

All 25 analysts covering Arista Networks stock recommend buying it. The average price target implies a 51% increase in the stock's price. Sixteen out of 19 analysts recommend increasing exposure to Monolithic Power Systems, while the remaining analysts recommend holding. The price target is 47% higher than the current price.

Tech giants Amazon, Google, Meta Platforms, and Microsoft plan to allocate $202 billion to capital expenditures this year, a 79% increase from last year, Najee noted. This amount reflects spending on assets such as chips and networking equipment, which are intended to yield returns over the long term, MarketWatch notes.

Although none of the major cloud platforms has disclosed its spending figures for next year, “all four companies have made it clear that spending will continue to rise,” the analyst noted, adding that Wall Street forecasts this group’s combined capital expenditures to potentially exceed $1 trillion.

This article was AI-translated and verified by a human editor