Nvidia (NVDA) experienced a significant decline of more than 5% on Wednesday, erasing earlier gains, as chip stocks led the overall market downward. This sell-off in Nvidia and other chip names occurred despite a positive note from Piper Sandler analysts, who emphasized a "tremendous opportunity" to invest in chip stocks following the recent sector-wide decline.

Piper Sandler analyst Harsh Kumar highlighted Nvidia's strong position in the AI accelerator space, touting their next-generation chip and the upcoming release of the Blackwell architecture in October. The firm believes these factors will drive revenues well into 2025 as demand surpasses supply. With Nvidia's stock price significantly lower than its previous highs of $140, Piper Sandler sees great potential in investing in the company and rates it as "overweight" with a $140 price target.

However, amidst Monday's market downturn, The Information reported a potential three-month delay in Nvidia's next-generation AI chips, which could have an impact on major customers such as Microsoft, Alphabet, and Meta. Responding to these reports, Nvidia issued a statement affirming that production of the Blackwell chip is on track to ramp up in the second half of the year.

Alongside Nvidia, Piper Sandler also views Advanced Micro Devices (AMD) as a "Top Pick" due to its increasing market share in the traditional server market, despite facing competition from incumbents like Intel. Should Nvidia's chip delay turn out to be true, Piper Sandler believes AMD stands to benefit, especially if there are supply or timing issues for Nvidia's chips. On Wednesday, AMD's stock experienced a slight 1% decline.

Last week, Nvidia saw a notable 12% increase in its stock following positive quarterly results from its peer, AMD. The strong spending on data center infrastructure by Big Tech companies has been seen as a promising sign for chip suppliers. However, the chip sector as a whole has been quite volatile over the past few weeks, largely due to the downturn in Big Tech stocks. Since the start of July, the Philly Semiconductor Index has dropped by almost 15%, prompting Piper Sandler to reassess its coverage and identify stocks that remain fundamentally well-positioned.

In addition to Nvidia and AMD, Piper Sandler believes ON Semiconductor (ON) is well-positioned in the current market environment. Chip stocks attempted a rebound early Wednesday, but were ultimately impacted by the recent market plunge, which pushed the Nasdaq Composite into correction territory. On Monday, Nvidia experienced a further 6% decline as part of the broader loss of market capitalization amounting to over $650 billion for the "Magnificent Seven" stocks.

Despite the challenges faced by chip stocks and the volatility in the market, analysts like Piper Sandler see long-term potential for investments in companies like Nvidia and AMD due to their strong position in the AI and server markets, respectively. The industry will closely watch for any updates or clarification on the potential chip delay and its ramifications for the market.