Goldman Sachs believes chipmakers' stocks are overbought. Which stocks does it recommend?

Goldman Sachs analyst James Schneider believes that semiconductor stocks have entered oversold territory following last week's sell-off. In a note cited by Yahoo Finance, he recommended that investors buy shares of Nvidia, Broadcom, and AMD.

According to the analyst’s assessment, even under a scenario of zero growth in 2028, Nvidia and Broadcom shares are trading at attractive valuations: the forward P/E ratio for these stocks—which shows the relationship between price and projected earnings—stands at 12 and 13, respectively. However, Schneider said it is unlikely that current prices will hold.

Goldman considers AMD stock a good buy, but only in light of its upcoming growth, “which the company is capable of achieving, even though its market valuation is less attractive,” the analyst wrote.

Schneider also highlighted two issues that are causing concern among investors. Market participants are trying to understand how the gap between current capital expenditures and free cash flow for hyperscalers and AI model developers will be bridged. Furthermore, it remains unclear whether enough data centers—secured with land and power—will come online to justify Wall Street’s current forecasts for the semiconductor sector. Following the Democrats’ victory in the U.S. congressional and gubernatorial elections on November 3, these concerns have come to the forefront, the analyst notes: uncertainty has increased regarding the pace of data center construction in key states such as Texas.

“While we acknowledge that there may be few drivers of stock growth between now and the end of the year, we believe that the risk-reward ratio for individual stocks looks attractive at current prices,” Schneider wrote.

The sell-off in chipmakers’ stocks intensified last week. On November 5 alone, the broad-market S&P 500 index fell 4.3%, reducing its market capitalization by $3 trillion, while the Nasdaq Composite plummeted 5.5% amid a decline in shares of chipmakers and hyperscalers. The Philadelphia Semiconductor Index has lost 21% over the past month.

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