• CNBC's Jim Cramer on Monday recommended three chip stocks to buy while they're down from their highs: Micron, AMD and Arm.
• "I think the chip stocks have sold off way too hard," he said. "Every reason we had to like this group earlier this year remains intact."

CNBC's Jim Cramer on Monday recommended three chip stocks to buy at a discount: Micron, AMD and Arm.

"I think the chip stocks have sold off way too hard," he said. "Every reason we had to like this group earlier this year remains intact."

The chip sector has retreated in recent weeks, with SMH, a prominent semiconductor exchange-traded fund, down more than 18% from its 52-week high in July, according to FactSet. Cramer pointed out that the fund remains up more than 25% year to date and said this sector needed to cool down after stocks rallied too much too fast.

Wall Street is broadly worried about a decline in enterprise spending on artificial intelligence, as well as the possibility of a recession before the Federal Reserve can cut interest rates. Cramer said some investors are concerned companies that have spent on AI technology are not seeing enough of a return on their investments, and they were disappointed by Nvidia's recent quarter. Although the AI giant beat estimates, it failed to wow investors — who had become used to consecutive earnings reports that came in very far above expectations — stoking fears the AI boom would be short-lived.

But Cramer said he thinks Nvidia's results were affected by a lack of supply, not demand, of its newest advanced graphics chip, saying the AI boom remains "very real," and companies are shelling out to build AI infrastructure.

AMD: While Cramer said Nvidia was rivaled in the semiconductor space, he asserted that there is solid demand for AMD's products, and it takes a second place to the megacap. He was also impressed by AMD's recent quarter and some of the deals it announced over the summer.

Micron: Cramer called Micron "the market leader in memory chips," and said the hyperscalers building out data centers need memory. He added that he thinks the stock is currently cheap based on its earnings estimates for the next fiscal year.

Arm: Arm's stock has more than doubled since its market debut about a year ago, and the chip designer's licensing royalties give it a predictable revenue stream, Cramer said. He also pointed out that the stock got a boost on Monday after a report that Apple would be using its chip design for the iPhone 16.

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Disclaimer The CNBC Investing Club Charitable Trust holds shares of AMD, Apple and Nvidia.

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