Citi sees the recent decline in chip stock prices as a good opportunity for investors to make purchases.

Citigroup sees the recent decline in chip stocks as a prime buying opportunity for investors. Analyst Christopher Danely emphasized in a detailed report that Micron is particularly promising due to the tight conditions in the dynamic random access memory (DRAM) market, which is dominated by a few key players. The technology sector, including chip stocks, has been under pressure since mid-June, with the downturn intensifying after a weak July jobs report and an unexpected rate hike by the Bank of Japan. This led many investors to abandon the yen carry trade, opting to buy yen and sell dollars instead.

Danely also pointed to underwhelming performance from semiconductor and semiconductor equipment companies as a factor in the sector’s decline. The VanEck Semiconductor ETF has dropped 21% over the past month. He noted that the PHLX Semiconductor Sector Index was trading at a significant premium to the S&P 500, its highest since 2008, due to very high expectations. Earnings forecasts for 2025 have been reduced by 11%, partly because of disappointing results from companies like Intel, NXP Semiconductors, and Microchip Technology.

In addition to Micron, Danely highlighted Advanced Micro Devices, Nvidia, and Analog Devices as top buy-rated stocks. He remains optimistic about the fundamentals of the AI and memory markets, which account for about 30% of semiconductor demand, noting that AI capital expenditures are rising and DRAM pricing has exceeded expectations in the third quarter of 2024.