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Sector Update: Tech Stocks Fall in Friday Afternoon Trading—Here's Where to Find Undervalued Opportunities

Victor HaleFriday, May 23, 2025 3:20 pm ET

20min read

The tech sector's recent volatility has created a rare opportunity for investors to capitalize on undervalued stocks amid temporary headwinds. On Friday, May 23, 2025, tech stocks extended their declines, with the Nasdaq Composite dropping 1.6% and the S&P 500 Information Technology sector falling 2.7% for the week. While fear and uncertainty dominate headlines—driven by trade wars, layoffs, and regulatory challenges—the data reveals a compelling case for selective buying in semiconductors, software services, and AI-driven enterprises. Here's why now is the time to act.

The Catalysts Behind the Sell-Off: Tariffs, Layoffs, and Overreaction

The sector's recent declines stem from three key factors:

Trade Tensions: President Trump's threat to impose 50% tariffs on EU imports has spooked investors, particularly in consumer electronics and semiconductor firms reliant on global supply chains. Apple's 2% drop on Friday reflects this anxiety, though the long-term impact may be overstated.
Mass Layoffs: Over 90,000 tech jobs have been cut globally in 2025, with Intel planning to reduce its workforce by 20% and Microsoft shedding 8,800 roles. While this signals cost-cutting, it also suggests companies are streamlining operations to focus on high-growth areas like cloud services and AI.
Market Overreaction: Fear of macroeconomic slowdowns has pushed the VIX volatility index to 34, a level typically associated with panic selling. However, many declines—particularly in undervalued software and services stocks—appear disproportionate to fundamentals.

Where to Find Value: Three Undervalued Tech Sub-Sectors

1. Semiconductors: Buying the Dip in Innovation Leaders

While companies like Nvidia and AMD have been battered by export restrictions and tariff fears, their long-term growth trajectories remain intact. For example:
- ASML Holding (ASML): A leader in chipmaking equipment, ASML's 8% drop this week followed missed order expectations. However, its 2026 backlog remains robust, and its 26.7x P/E ratio is now in line with historical averages.
- Intel (INTC): Despite cutting 25,000 jobs, Intel's shift to advanced chip manufacturing and AI infrastructure positions it for a rebound. Its 12-month forward P/E of 18.5x is a steal compared to its 5-year average of 24.

2. Software Services: Bargain Pricing in Cloud and AI Infrastructure

The software sector has been unfairly punished by macro fears, offering discounts to companies with strong recurring revenue models:
- Endava (DAVA): This 5-star software services firm saw its stock drop 24% this week, yet it trades at a 58% discount to its $35.50 fair value. Its 44% year-to-date revenue growth in digital transformation projects suggests resilience.
- Globant (GLOB): Specializing in AI and cloud solutions, Globant's 21% weekly decline leaves it at a 44% discount to its $180 fair value. Its 2025 revenue forecast of $1.2B (+28% YoY) is underappreciated.

3. AI and Prompt Engineering: A Structural Growth Play

The recent layoffs in AI roles are a temporary correction, not a death knell. Companies with proprietary AI models and scalable platforms are primed for recovery:
- Fortrea (FTRE): A narrow-moat AI developer, FTRE's 27% weekly drop to $4.44 (vs. a $15.50 fair value) makes it one of the most undervalued names in the space. Its enterprise AI solutions for healthcare and finance have already secured $300M in committed contracts.
- NVIDIA (NVDA): Despite a $5.5B charge tied to China export restrictions, NVIDIA's dominance in AI GPUs and data center solutions remains unchallenged. Its 10% drop this week leaves its P/S ratio at 7.5x—well below its 2024 peak of 11x.

Why Act Now? The Catalysts for Recovery

Trade Deal Potential: With U.S.-EU trade talks ongoing, a resolution to tariff threats could unlock 10–15% upside in consumer electronics and semiconductor stocks.
Cost Cuts Pay Off: Layoffs and automation are reducing expenses, which should boost margins for companies like Microsoft and Intel by late 2025.
AI Adoption Surge: Global spending on AI infrastructure is projected to hit $500B by 2026, favoring firms like FTRE and Globant that are already embedded in enterprise workflows.

Final Call to Action

The tech sector's recent slump has created a once-in-a-decade buying opportunity in undervalued software, semiconductor, and AI stocks. Investors who deploy capital now—while volatility persists—can capture asymmetric upside as macro fears fade and fundamentals take hold.

Target Entry Points:
- ASML (ASML): Below $320 (current price: $335)
- FTRE (FTRE): Below $4.50 (current price: $4.44)
- GLOB (GLOB): Below $100 (current price: $101)

The clock is ticking. Act before the market recognizes these bargains—and the opportunity disappears.

This article is for informational purposes only. Always conduct your own research and consult a financial advisor before making investment decisions.

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