Despite growing concerns around overheating AI trades and a sharp decline in Broadcom Inc. (NASDAQ:AVGO) shares on Thursday, tech investor Dan Niles says semiconductor investors should remain optimistic about the sector's long-term trajectory.
AI And Semiconductor Rally Shows Signs Of Froth, Says Dan Niles
In a post on X on Thursday, Niles said he had become increasingly cautious about the near-term outlook for semiconductor stocks after a rapid run-up pushed valuations and investor enthusiasm to elevated levels.
The veteran investor pointed to the semiconductor index's nearly 95% climb from its March lows through early June and warned that parts of the market had started showing "bubble like behavior."
He highlighted several outsized stock moves as evidence of mounting exuberance, including Micron Technology Inc.'s (NASDAQ:MU) roughly 19% jump following an analyst upgrade, Dell Technologies Inc.'s (NYSE:DELL) 33% post-earnings surge, Hewlett Packard Enterprise Co.'s (NYSE:HPE) 19% rally and Marvell Technology Inc. (NASDAQ:MRVL) sharp rise following comments at Computex.
Broadcom Selloff Fails To Break Semiconductor Momentum
Niles said he expected weakness in Broadcom shares after the company reiterated AI guidance rather than raising expectations, believing it could trigger a larger pullback across chip stocks.
Instead, Broadcom shares fell about 12.59% during regular hours while the iShares Semiconductor ETF (NASDAQ:SOXX) slipped only 2.10%.
"Semiconductor bulls should be thrilled at the resiliency of a sector that looked ripe to get crushed from technically extended levels when one of the bellwethers got hit," he said.
Even so, Niles expects additional near-term pressure, describing any pullback as a move to "work off overbought conditions" rather than signaling a market top.
Why Niles Remains Bullish On AI Stocks Long Term
Niles' longer-term optimism centers around agentic AI, which he argues could require substantially more computing power than traditional chat-based AI systems.
"To reiterate prior posts, the reason why I am still bullish through early next year is Agentic AI," he wrote.
He said he remains constructive on names including Nvidia Corp (NASDAQ:NVDA), Advanced Micro Devices, Inc. (NASDAQ:AMD) and parts of the analog semiconductor space, while warning that elevated oil prices remain the biggest macroeconomic risk to markets and inflation.
On Wednesday, Broadcom reported second-quarter revenue of $22.19 billion, slightly below analyst expectations of $22.27 billion, while adjusted earnings came in at $2.44 per share, topping estimates of $2.40 per share.
Looking ahead, the chipmaker forecast third-quarter revenue of about $29.4 billion, ahead of Wall Street estimates of $28.54 billion, and projected adjusted EBITDA margins of 68% of revenue.
Benzinga Edge Stock Rankings place AVGO in the 96th percentile for Quality, highlighting strong performance across short, medium and long-term periods.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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