Analysts are badmouthing the chip sector. This negative sentiment has driven down the stocks of strong and weak chip stocks like. Bad news for some investors. Good news for you.

First, let’s look at the unwarranted pessimism over the chip sector. Then we’ll review the prospects of Western Digital (NSDQ: WDC) and Taiwan Semiconductor Manufacturing (NYSE: TSM). These two chip makers remain solid buys in the BTP portfolio.

Morgan Stanley (NYSE: MS) recently lowered its ratings on chip stocks, including WDC and TSM. The investment bank cited falling flash memory prices and forecast declining earnings growth for chip makers in 2018.

The report stated:

“We think now is the time to reduce exposure to NAND [flash memory] and Asian semiconductor names as the industry has benefited from sizeable demand tailwinds and unprecedented pricing power, which we see reversing soon.”

Those are the words of analyst Shawn Kim in a note to clients entitled “Time For a Pause.” Kim goes on:

“Given our view of the cycle, we cannot recommend the sector until the market recognizes mounting pressure on NAND prices and slowing logic chip growth momentum in the near term. … This reflects our negative view of prospects for the global memory industry, which is currently at a peak.”

Other analysts jumped onto the bandwagon. They argued that investors should heed historical memory cycles. The advice: dump chip stocks three to six months before memory prices crest.

It’s true, flash memory prices are already falling. DRAM memory prices are expected to peak in 2018.

But context is called for. Semiconductor stocks have enjoyed a huge run in 2017. The iShares PHLX Semiconductor ETF (SOXX) has generated a year-to-date total return of nearly 42%, compared to about 20% for the S&P 500.

Chip prices were due for a breather. But the long-term prospects for WDC and TSM remain bright.

Western Digital makes computer memory devices. Key products include hard disk drives and solid-state drives for a range of products. WDC is positioned in the booming field of cloud storage. That’s the right place to be.

Morgan Stanley has encouraged the notion that the memory chip market faces a supply glut. But it ignores the fact that breakthrough technologies such as artificial intelligence (AI), the Internet of Things (IoT), and machine learning will fire-up demand for more robust cloud capacity.

Data is the lifeblood of AI. The growth of cloud computing is only in its early stages. Research firm Gartner expects cloud revenue to reach $162 billion in 2020, up from $67 billion in 2015. That’s a compound annual growth rate of 19%.

WDC is in the sweet spot of this unstoppable trend. Yet it trades at a bargain. The stock’s trailing 12-month price-to-earnings ratio (P/E) is only 16.7, compared to 23.1 for the industry average. WDC’s forward P/E is only 6.2.

The average analyst expectation is that WDC’s year-over-year earnings growth will come in at 45.40% this year. I calculate that WDC’s five-year earnings growth should reach at least 24% on an annualized basis.

WDC remains a buy up to $103.

As with Western Digital, Taiwan Semiconductor Manufacturing is better positioned than its peers. The new wave in chip making is for ultra-miniaturization. TSM continues to beef up production of its 10-nanometer technology process.

A nanometer is a one-billionth of a meter. Smaller chips take up less space and energy. TSM is working on a 7-nanometer process which is due out in 2018. The company’s 5-nanometer process is due for 2019.

TSM is gaining a competitive advantage in the exploding areas of AI and IoT. It also is expanding its market share in electric vehicles and mobile devices.

I like the fact that TSM spends heavily on research and development. The company’s latest guidance calls for R&D in 2017 to come in at $10.8 billion, compared to previous guidance of $10 billion.

The consensus is that TSM’s earnings growth this year will reach 8.50%. TSM’s five-year earnings growth should reach at least 15% on an annualized basis. The trailing P/E comes in at about 17, below the industry.

TSM remains a buy up to $50.

John Persinos is chief investment strategist of Breakthrough Tech Profits.