AI Chip Stocks are Cheapest in 15 Years. Is the Sell-Off Over?

AI chips are trading at their cheapest valuation since 2011. The Philadelphia Semiconductor Index (SOX) sits near 10 times two-year forward earnings. However, prices have fallen far faster than analyst forecasts. If those estimates get cut, chipmaker shareholders may find the discount smaller than it looks. Are AI Chips Cheap or a Value Trap? According to Bank of America, AI chip stocks are now trading at a 22% discount to the broader SP 500, based on expected earnings. That makes them look relatively cheap compared with the rest of the stock market. But there is a catch. These valuations assume that AI spending will remain strong. If major technology companies cut their planned AI investments for 2027 by just 20%, chipmakers could see their expected profits fall sharply. That means stocks that look cheap today could suddenly become expensive if their earnings fail to meet Wall Streets expectations. Why Did Chip Stocks Lose 38% Since June? Fears of slowing AI infrastructure spending drove the decline. On Nov. 5 alone, the SOX index lost 12.2% during Wall Streets crash. That was its worst session since March 2020. Nvidia (NVDA) closed Monday at $178.67, 26% below its 52-week high, in a slide into bear territory. Leadership risk adds pressure. CEO Jensen Huang admitted an affair with a former executive of Megaspeed, a Singapore-based Nvidia chip buyer. US authorities reportedly concluded she was a Chinese intelligence asset, which Beijing denies. Nvidias board opened an independent investigation on Nov. 8 while backing Huang. A Nov. 11 congressional deadline now arrives days before Nvidia reports earnings on Nov. 17. Can AI Chip Stocks Recover? Here Are the Key Levels to Watch AI chip stocks have started recovering from last weeks crash, but the broader market trend remains negative. The Philadelphia Semiconductor Index (SOX) rebounded nearly 11% in two trading sessions, closing Monday at 10,033.93. However, the index is still struggling to break above important price levels. For investors, three scenarios matter. SOX daily chart. Source: TradingView Bullish scenario Above 10,100: If the index closes above this level, it would suggest the recovery is gaining strength. The next targets would be 10,700 and 10,869, where selling pressure could return. Bearish scenario Below 9,976: If the index fails to hold this level, the recent recovery could fade. That would put 9,000 back in focus, with a further decline toward 8,704 possible. Momentum is improving: The Relative Strength Index (RSI), which measures buying and selling pressure, has recovered to around 40 after reaching oversold territory on November 5. This suggests selling pressure is easing, although buyers have yet to take control. The next major test comes on November 17, when Nvidia reports earnings. Strong results could help restore confidence in AI chip stocks, while disappointing forecasts could trigger another selloff. Bank of America still expects the sector to fall roughly another 10% before reaching a bottom in early 2027. That suggests the recent rebound may be premature, even with valuations at historic lows.