JPMorgan sees recent tech sell-off as a buying opportunity for AI-linked stocks

JPMorgan analysts have suggested that the recent sell-off in technology stocks, driven by fears of an artificial intelligence (AI) bubble, may in fact represent a timely buying opportunity for investors. According to a note distributed to clients following Nvidia’s exceptional earnings report, the investment bank highlighted 15 hardware and networking companies with significant AI exposure that they consider undervalued due to what they describe as “overblown” risks already priced into their shares.

These stocks have experienced substantial declines in recent weeks, typically between 10% and 30% from their highs over the previous month, with one stock down nearly 40% and another just about 5%. JPMorgan’s list includes prominent names such as PC maker Dell, server manufacturer Arista Networks, laser system leader Coherent, electronics manufacturing services providers Flex and Jabil, as well as connector maker Amphenol. Other picks include Super Micro Computer, an ally of AI chipmaker Nvidia, smartphone glassmaker Corning, optical components firms Fabrinet and Lumentum, data storage provider Pure Storage, networking company Ciena, data centre supply chain firm Celestica, test equipment maker Teradyne, and connector and sensor maker TE Connectivity.

JPMorgan’s analysts emphasised that these companies derive much of their AI-related business from large, well-established technology firms expected to continue investing heavily in AI infrastructure over the near term. This association, they argue, provides a degree of stability in financing and reduces exposure to the more volatile segments of the AI sector.

Taking Dell as an example, the company’s shares have dropped by roughly a quarter since late October. However, JPMorgan contends that investors may be underestimating Dell’s proven ability to manage rising component costs, even as concerns about margin pressures mount. This view contrasts somewhat with that of Morgan Stanley, which recently downgraded Dell’s stock citing mounting fears over the impact of rising prices for key components like memory chips.

Looking beyond immediate AI hype, JPMorgan’s analysts have also identified Dell and Arista Networks as stocks worth watching into 2025. They foresee the demand drivers for these tech firms expanding beyond AI-specific investments to include more traditional IT infrastructure spending, which they believe could underpin substantial earnings growth. In this context, JPMorgan projects that Dell alone could realise around $9 per share in earnings from core infrastructure demand, supplemented by an additional $2 per share from AI infrastructure-related activities. This drives a bull-case valuation significantly higher than the current share price, signalling considerable upside potential.

This analysis comes amid broader market jitters around AI stocks, which have surged sharply earlier in the year but subsequently faced a wave of sell-offs as investors questioned whether valuations were justified. JPMorgan’s stance suggests that current market corrections may be an overreaction, creating an opening for “bargain hunting” in select hardware and networking stocks with strong fundamentals and promising growth prospects.

Investors should note, however, that the AI sector remains highly dynamic and competitive, with risks around future technology adoption, component shortages, and geopolitical factors continuing to influence stock performance. Nonetheless, JPMorgan’s insights provide a valuable framework for identifying established companies with durable business models that are likely to benefit from ongoing AI advancements while offering attractive entry points after recent price declines.