The AI Trade Just Had Its Worst Stretch in Months. Here Are 3 Reasons the Sell-Off Could Be a Buying Opportunity.

The artificial intelligence (AI) trade just went through its roughest stretch in months. After a nine-week run higher, the major indexes pulled back last week, and the selling peaked on Friday, when the Nasdaq Composite fell about 4.2% -- its steepest single-day drop since early 2025. Chip stocks took the worst of it, with the broad semiconductor group sliding about 10% in that single session.

The sell-off appeared to be tied to several things. Broadcom (NASDAQ: AVGO) posted record results but stopped short of raising its full-year outlook for AI chips, a hotter-than-expected May jobs report pushed bond yields higher and revived worries about a possible interest rate increase, and renewed tensions in the Middle East added to the unease. All told, about $1.3 trillion in value came off U.S.-traded chipmakers on Friday.

But the businesses behind those stocks look as healthy as ever. And shares briefly bounced, with the Nasdaq rising about 0.9% on Monday as the names that led the drop led the recovery. But skittishness in the sector returned on Tuesday.

Here are three reasons last week's decline could prove to be an opportunity rather than a warning.

Image source: Getty Images.

1. The spending behind the trade hasn't slowed

First of all, it's worth noting that massive AI spending seems to just be getting started. The four biggest U.S. cloud operators collectively plan to spend around $700 billion on capital expenditures to support data centers and the chips that fill them in 2026 -- nearly double what they spent in 2025. And three of the four actually raised those plans when they reported in late April.

Much of that money, of course, flows directly to the chip designers that sold off last week, and a good chunk of it is already committed. On its fiscal second-quarter earnings call (covering the period ended May 3, 2026), Broadcom's management reiterated that it expects its AI chip revenue to be above $100 billion in fiscal 2027, pointing to contracted demand from a small group of large customers that includes Google, OpenAI, and Anthropic.

A few rough sessions for the stock -- and the broader chip sector -- don't change those order books.

2. The businesses are still growing fast

Last week's selling had little to do with how these companies are performing. Nvidia (NASDAQ: NVDA) reported results for its fiscal first quarter of 2027 (the period ended April 26, 2026) last month that were the best in its history. Revenue rose 85% year over year to a record $81.6 billion, its data center business grew 92%, and management guided for about $91 billion in the current quarter. The company also lifted its dividend and added $80 billion to its share repurchase program.

"The buildout of AI factories -- the largest infrastructure expansion in human history -- is accelerating at extraordinary speed," said Nvidia founder and CEO Jensen Huang in the company's fiscal first-quarter earnings release.

Broadcom told investors a similar story. In early June, the chipmaker posted record fiscal second-quarter revenue of $22.2 billion, up 48% year over year, with its AI chip revenue alone jumping 143% to $10.8 billion. It also guided for AI chip sales to grow more than 200% in the current quarter.

3. Valuations have come back to earth

The pullback did something useful, too. It let some air out of valuations that had climbed in a hurry. Semiconductor stocks had run up sharply through the spring, and Nvidia alone shed close to $280 billion in market value during the slide.

After that reset, the numbers look more reasonable than they have in some time. As of this writing, Nvidia trades around $208, down about 12% from its mid-May high, and changes hands at about 32 times earnings.

For a business still expanding revenue at better than 80% a year, a valuation multiple like this hardly seems stretched.

So, is the sell-off a buying opportunity?

There's still risk to the AI trade, of course. Valuations across the group still leave little margin for error, so any real sign that AI spending is cooling could hit these stocks hard. Higher interest rates and the situation in the Middle East also add to the risks.

Still, the case for last week's drop and Tuesday's renewed tech selling being a breather rather than the start of a major drawdown unlikely to recover anytime soon is a reasonable one. Major cloud providers' spending plans and the latest earnings reports continue to tell a story of staggering AI growth. For investors with a long time horizon, a sharp dip in high-quality companies that are still growing this quickly may be worth a closer look.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom and Nvidia. The Motley Fool has a disclosure policy.