The semiconductor bull run will persist until mid-2026, based on previous cycles, Bank of America said.
This will benefit three major industry themes: cloud computing, cars, and complexity.
Nvidia, Broadcom, NXP Semiconductors, and KLA Corporation are among BofA’s top picks.
The semiconductor bull run is a long way away from petering out, with artificial intelligence momentum likely to carry it towards a mid-2026 peak, Bank of America said.
Ever since AI frenzy first took over markets, the semiconductor-tracking SOX index has shot past benchmark indices, and is already up 26% year-to-date. Compared to the S&P 500, it trades at a 4 to 5 times premium, the bank said.
Of course, a pullback could come from near-term triggers, such as the US election or monetary policy, but there’s good reason to remain bullish, analysts wrote on Monday.
That’s as the chip industry often undergoes 10 quarters of upside after experiencing a downcycle, a pattern that has just begun.
“The current upcycle started in late’23, so we are only in quarter 3, implying strength likely till mid-26E. However, chip stocks (SOX) change direction 6-9 months ahead of cycle inflection, so semis could potentially peak sometime around 2H25, or another year+ from now,” Bank of America said.
What’s more, the sector is expected to accelerate towards double digit annual sales growth in 2025, after last year’s inventory correction.
For investors trying to capture this rally, the note offered three investing themes that will benefit: cloud computing, cars, and complexity.
For the first, Nvidia is a top pick, as well as Broadcom. Bank of America sees major upside potential for both, holding a $1,500 and $1,680 price objective on each.
At least for Nvidia, some of this stems from bullish outlooks on AI data center expansions, which provide strong demand for the firm’s hardware. Of today’s global IT spending, data center systems make up around 5%, or $260 billion, the bank said. But by 2028, this could jump to $360 billion.
Meanwhile, the growing importance of chips in the auto industry should boost stocks such as NXP Semiconductors. This top pick has price objective of $320.
“Industrial/auto chip stocks are less crowded and offer diversification away from AI, with easier compares going into CY25E,” the bank said. “End of inventory correction could support solid double sales growth into CY25E.”
Finally, the growing complexity of semiconductor manufacturing should support the industry’s climbing valuations, justifying the trading range of these stocks, such as KLA Corporation and Synopsis.
Bank of America holds a price objective of $890 and $650.
“The top 5 global semicap equipment stocks are trading at a 46% premium or 26x CY25 PE vs. 18x historical average,” analysts wrote. “We expect the premium to persist on leverage (fundamental, sentiment) to AI driven chip complexity, to global reshoring efforts, and to their solid 25%+ FCF margins even at trough of recent [wafer fab equipment] cycle.”
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