US semiconductor stocks are getting hammered after the Chinese launched an AI model that has many questioning United States dominance in the AI space. China is currently facing restrictions on importing state-of-the-art semiconductor equipment needed for AI training. The launch of DeepSeek AI despite these restrictions is an eye-opener for Western tech companies, and the investor sentiment is reflecting it.
As market participants scamper to gather more information on China’s progress, we decided to look at stocks that are not only taking a hit from this news but also provide an attractive buy-the-dip opportunity. Against the backdrop of Project Stargate, a US government initiative to pump private sector investments into AI infrastructure, these companies also offer a potential multi-bagger opportunity.
Usually, it is the low market cap companies that become multibaggers. However, the failure rate when betting on these companies is quite high. We therefore chose companies with a market cap between $10 and $25 billion. In this way, our list contains businesses that are already established and will thrive on the boost provided by Project Stargate while successfully managing any headwinds. We believe the downside to these stocks is minimal because of the already sound fundamentals of these companies.
10. Ciena Corporation (NYSE:CIEN)
Ciena Corporation makes networking equipment for multiple industries together with providing services and software support. In the context of recent AI developments, the company sells fiber optics to connect data centers. The stock is down 15% today.
Data centers are evolving and we could soon have multiple data centers networked together in small spaces. This would be similar to how computers needed their own big rooms but we now have them in the palm of our hands. Nvidia CEO Jensen Huang recently claimed that a data center could be the new unit of computing. He was referring to how in the future, data centers would be connected together. This ‘connection’ is where Ciena Corporation’s networking expertise comes in.
CIEN is already up 11% this year and this optimism could continue as further AI investments continue to pour in. The stock was over $1000 two and a half decades ago at the peak of the dot com bubble. If the euphoria returns, similar levels can’t be ruled out.
9. Celestica Inc. (NYSE:CLS)
Celestica Inc. is a provider of connectivity and cloud solutions to customers across North America, Asia, and Europe. Like many other companies, it offers hardware, software, and services solutions to generate revenue. The company’s stock has nearly quadrupled in a year but there’s renewed optimism now that AI is in focus again. After today’s developments, it is available at a 12% discount.
The company’s growth is unlikely to slow down before 2027. The aggressive investments in data centers by Big Tech companies and now through Trump’s new Project Stargate program can not only sustain the company’s impressive 20% growth rate but could even accelerate it.
The only major risk associated with the stock is that 25% of its FY23 revenue came from just one customer while the top 10 customers generate 64% of the company’s revenue. This heavy dependence on a few customers could backfire, though the management is proactive and may well have already worked out a diversification plan. We will find out when the next earnings report comes out.
8. Fabrinet (NYSE:FN)
Fabrinet is a critical component of the semiconductor manufacturing supply chain. The company makes advanced optical products for the industry in addition to electro-mechanical like modulators and switches among others. Currently, the stock is trading down 17%.
The company’s recent success has come on the bank of Nvidia’s success in AI, as the firm makes certain optical cables for the GPU maker. This partnership is expected to drive future growth as well. The management’s confidence can be judged by the fact that it is about to break ground on its 10th building, which is twice the size of the one they are building at the moment. This shouldn’t concern investors as the management has a sound strategy for expansion, not starting a new project until the previous one is at more than half the capacity.
Apart from the above, the company continues to buy back stock, has decent cash flow to fund expansion, and is debt-free! If Project Stargate goes ahead, Fabrinet could be a massive beneficiary.
