Analyst Urges Investors to Buy Chip Stocks Amid Tech Market Dip

Key Takeaways

• Ben Reitzes from Melius Research advises investors to purchase tech stocks during the recent market decline
• The analyst prefers semiconductor companies including Nvidia, Broadcom, Micron, and AMD instead of cloud computing giants
• Microsoft’s approach to AI development was described as a “mess” by Reitzes, who questioned CEO Satya Nadella’s strategic shift to model agnosticism
• The computing revolution is viewed as a two-decade opportunity, with comparisons to the oil industry’s significance
• Major semiconductor ETFs including SOXL and SOXX experienced significant declines, though QQQ has gained 36% year-over-year

The technology sector experienced a downturn this week, but according to Ben Reitzes, who leads technology research at Melius Research, investors should view this as a buying opportunity rather than a cause for concern.

During his Tuesday appearance on CNBC, Reitzes emphasized that similar market pullbacks have traditionally presented attractive entry points, and he believes the current situation follows that pattern.

“These have been opportunities in the past, and we just don’t really see any change,” he said.

The Case for Semiconductors Over Cloud Providers

Reitzes maintains positive ratings on multiple chip manufacturers, including Nvidia, Broadcom, Micron, and AMD.

NVIDIA Corporation, NVDA

Meanwhile, he takes a more reserved stance on cloud infrastructure providers such as Microsoft, Oracle, and Google.

His investment thesis is straightforward: cloud computing companies are investing billions in infrastructure development, with those funds flowing directly to semiconductor manufacturers. “They’re handing money to my other companies. It’s never going to stop,” he explained.

Reitzes also highlighted that cloud providers have halted share repurchase programs and are taking on debt to finance their artificial intelligence infrastructure expansion. Meanwhile, chip companies like Nvidia continue distributing cash to their shareholders through buybacks and dividends.

“Why bother?” Reitzes said of investing in hyperscalers at this stage.

Criticism of Microsoft’s Evolving AI Approach

Reitzes specifically targeted Microsoft CEO Satya Nadella, who recently announced that Microsoft would adopt a model-agnostic philosophy for artificial intelligence.

In recent weekend statements, Nadella created distance between Microsoft and leading AI model developers like OpenAI and Anthropic — companies in which Microsoft has made substantial investments.

According to Reitzes, Nadella’s remarks indicate the company is still developing its AI strategy in real-time.

“They’re going to move to partial consumption, partial license… call me when they figure it out,” Reitzes said.

He stated he has no appetite for investing in cloud infrastructure companies while they continue wrestling with fundamental business model questions around consumption-based versus subscription-based revenue structures.

Despite the critical commentary, Microsoft stock climbed almost 2% during Tuesday’s trading session.

Viewing Computing as a Multi-Decade Transformation

Reitzes characterizes artificial intelligence and computing power as a fundamental structural transformation rather than a temporary market theme.

He estimates the world is approximately three years into what may become a 20-year technological evolution. Drawing comparisons to the petroleum industry, he argues that computing will ultimately eclipse oil in economic importance.

He also noted that companies not adopting AI are already losing ground to those that are. “Those who are adopting AI are going to absolutely kick the butt of those who aren’t,” he said.

Market Performance Data

The Direxion Daily Semiconductor Bull 3X Shares ETF had declined more than 23% at the time of Reitzes’s interview. The iShares Semiconductor ETF experienced a nearly 8% drop.

Reitzes suggested that some of the selling pressure resulted from overcrowded exchange-traded fund positions concentrated in Korean memory chip manufacturers.

Over the trailing twelve-month period, the Invesco QQQ Trust has advanced 36%. The iShares U.S. Technology ETF has posted even stronger gains of 49% during the same timeframe.