These tech stocks got unfairly swept up in last week's selloff, analysts say

By Britney Nguyen

One analyst notes 'a meaningful gap between price and fundamentals' in some corners of the chip sector

Shares of Arista Networks have risen 29% so far this year.

Hardware and software stocks alike have been swept up by concerns about the sustainability of the artificial-intelligence trade - but analysts say some of those shares have been unjustly punished.

William Blair analyst Sebastien Naji noted that the iShares Semiconductor ETF SOXX lost 17% in October, and it's down 28% from its high in June. "The shift in sentiment is understandable given the group's strong run to record highs earlier this year and lingering questions about AI monetization, the ability to fund the buildout and a rising cost of capital," Naji said in a note to clients.

But in other ways, the selloff has been "indiscriminate," opening up "a meaningful gap between price and fundamentals" for some stocks, he added.

One of those is flash-controller maker Silicon Motion Technology (SIMO), whose shares have fallen 26.1% over the past month. Demand has soared for its chips, which manage the movement of data between devices such as servers with NAND flash memory.

Naji also sees "a compelling risk/reward" for Credo Technology Group Holding (CRDO), which sells high-speed connectivity components to move data in AI data centers. The stock has fallen 29% in a month and has only gained 5% so far this year.

Additionally, Naji noted "long-term compounders" Arista Networks (ANET) and Monolithic Power Systems (MPWR), which "have pulled back to increasingly attractive levels." Both stocks have a history of outperforming the market and exposure to customers outside of the AI data-center buildout, he said.

Arista, which provides switches and routers for AI data-center networking, has fallen 18.4% in a month, but is up 29% on the year. Power-management maker Monolithic also saw its shares fall about 18.1% over a month, but they're still up 33.7% so far this year.

Altogether, Amazon.com (AMZN), Google (GOOGL) (GOOG), Meta Platforms (META) and Microsoft (MSFT) are planning to put $202 billion toward capital expenditures this year, which is up 79% from a year ago, Naji observed. That figure represents spending on assets such as chips and networking that are meant to provide value over the long term.

While none of the hyperscaler cloud companies shared spending figures for next year, "all four signaled that spending will continue to rise," the analyst said, and Wall Street is eyeing potentially more than $1 trillion in capex for the group.

Meanwhile, as shares of cloud-infrastructure software makers sold off last week, Bernstein analyst Peter Weed noted that Cloudflare (NET) and Datadog (DDOG) have a "unique" driver behind them that could set them apart from peers "and allow them to emerge as still-accelerating infrastructure names."

For Datadog, he estimates its cohort of AI-native customers have added about $200 million more in annual recurring revenue for the third quarter than he had expected.

Meanwhile, Cloudflare Workers, which allows developers to run code on the company's global network instead of through traditional data-center servers, may have seen annual recurring revenue triple in the third quarter, to $500 million, from the fourth quarter of last year. That led Weed to model sequential growth of 25% in the fourth quarter of this year.

While there could be weakness in the fourth quarter compared to the previous year, Weed said the setup in the quarter "could allow a strong initial" outlook for Cloudflare's first quarter of next year, and the potential for more than 40% growth in 2027.

-Britney Nguyen

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11-02-26 1150ET