Should you buy the SOX pullback? Citi weighs in

Citi believes the recent decline in semiconductor stocks, particularly those in the AI sector, presents a buying opportunity. The bank's analysts argue that fears of a slowdown in AI spending are unjustified, citing reassurances from Nvidia and Broadcom executives. Broadcom's CEO, Hock Tan, reiterated confidence in the company's AI semiconductor revenue target of $115 billion for fiscal 2027.

Citi emphasizes the strategic significance of AI leadership, especially in the context of escalating U.S.-China technology competition. The bank also notes that former President Donald Trump has echoed this viewpoint, stressing the importance of the U.S. maintaining its technological dominance over China.

Citi suggests that while policy and safety concerns could potentially slow the pace of frontier model development, sustained demand for AI inference, coupled with ongoing supply constraints, should bolster capital investment in the sector. The bank views this slower rollout as potentially advantageous. Citi has assigned a Buy rating to both Nvidia and Broadcom, with price targets of $315 for Nvidia and $515 for Broadcom.