Nvidia’s Fall From Grace Hit Amphenol Stock Hard: Why It’s Time to Buy

Artificial intelligence (AI) was once a boon for Amphenol, a leading manufacturer of connectivity solutions. The company specializes in producing cables, sensors, and connectors pivotal in cars, planes, mobile devices, and data centers that power AI technologies. However, a recent stumble tied to Nvidia has created a prime buying opportunity for investors.

The Fallout from Nvidia’s AI Model

The AI boom drove Amphenol’s stock to an impressive 22% annual total return over the past five years, easily surpassing the S&P 500 index’s 15% rise. But recent news surrounding China’s DeepSeek, an ultra-efficient AI model that could decrease spending on data centers, struck fear into investors. Result? A 13% drop in Amphenol’s stock in just a week.

What’s baffling is that less than a week prior, the stock had soared 7% after Amphenol’s stellar fourth-quarter results, which significantly beat expectations and exceeded its own guidance. The company has a consistent track record—boasting uninterrupted profit growth since at least 2010 and missing only two quarterly earnings forecasts over the past five years, according to FactSet. It’s a rare blend of growth and stability.

Why the Drop is an Opportunity

If you missed your chance to buy Amphenol stock prior to its earnings pop, this recent pullback may be a second opportunity. As portfolio manager Luke O’Neill from the Catalyst Dynamic Alpha fund puts it, “Buying it on a 15% pullback—that’s not a bad entry point at all.”

Diverse Business Model Fuels Growth

Amphenol is not just another AI stock; it has a robust diversification strategy. In 2024, the company achieved 21% sales growth driven by multiple sectors including data centers, commercial aerospace, mobile devices, and defense markets. Its strategy of acquiring smaller players in a vast market also positions it well for future growth. In July, Amphenol announced plans to purchase CommScope Holding’s mobile networks business—an acquisition set to close in the first half of this year and expected to contribute over $1 billion in annual sales. Furthermore, with more than $2 billion in annual free cash flow, Amphenol is ideally positioned to continue its acquisition spree.

The Electric Vehicle Market: A Future Catalyst

While Amphenol has faced challenges in its automotive and industrial segments due to fluctuating global demand, it has still managed to outpace economic growth. If the electric vehicle (EV) market, characterized by high demand for connectivity solutions, begins to recover, substantial tailwinds could await Amphenol. Chief Investment Officer Ivana Delevska of Spear Advisors states, “Once the EV market turns, it’s going to be pretty significant for Amphenol.”

Impressive Growth Projections

According to FactSet, Amphenol is projected to grow total revenue by approximately 13% annually, aiming to reach $19.5 billion by 2026 from $15.2 billion in 2024. This expected growth will likely outstrip expense increases, pushing margins from 22.2% to 23% in the upcoming year. Analysts predict that earnings per share may grow by 16% annually over the next two years, eventually reaching $2.54 by 2026.

Valuation Considerations: Is It Cheap?

Even after a 10% decline from recent highs, Amphenol’s stock trades at a relatively high 30 times forward earnings compared to the S&P 500’s 21.9 times. However, this reflects not just its resilience but also its growth potential. With a PEG ratio of approximately 1.8, down from its decade average of 2.7, the stock presents an attractive long-term investment proposition. Keith Giordano from TD Cowen emphasizes, “As long as organic growth remains strong, shares will likely find support.” Plus, the company’s potential for share repurchases further bolsters its attractiveness as an investable asset.

Final Thoughts: Buy the Dip

This current market dip surrounding Amphenol, driven by Nvidia’s developments, opens up a golden opportunity for savvy traders. With a solid growth trajectory, diversification, and strong financials, Amphenol appears well-positioned to recover and continue its upward march post-recovery. Given its growth potential and the latest pullback, now could be an opportune moment to load up on this stock before it starts climbing again.

Stay savvy, trade smart, and keep your eyes on the trends. Happy trading!