Key insights
- BofA remains bullish on AI-related semiconductor stocks despite concerns about memory efficiency improvements. They highlight that AI capex is the key driver, expecting $1.4T by 2030. Top picks include Nvidia, Broadcom, and AMD, supported by positive developments like Mistral's chip purchase and Broadcom's government contract. This suggests continued strong demand for AI compute capabilities, outweighing memory efficiency concerns, and supporting positive sentiment for US equity market.
Investing.com -- Semiconductor stocks faced pressure recently following Google’s announcement of TurboQuant technology, which reduces memory requirements for AI inference by up to six times without sacrificing accuracy.
The news sent memory stocks lower on Thursday, with Micron Technology and the broader SOX index declining sharply.
However, Bank of America analysts maintain that AI capital expenditure remains the key indicator of AI demand, not efficiency improvements.
Bank of America notes that compression techniques like TurboQuant are not new, and Google has published similar technologies over the past 18 months. During that period, Google raised its calendar year 2026 capex outlook to up 100% year-over-year, reaching approximately $180 billion versus consensus estimates of only up 38% year-over-year at $127 billion.
The bank said it continues to believe demand for AI memory remains strong, with the six-fold improvement in memory efficiency likely to drive a comparable increase in model accuracy and context length rather than a reduction in memory consumption.
It expects global AI capex to reach approximately $1.4 trillion by calendar year 2030, with a conservative 25-30% capex intensity outlook over time.
Here are Bank of America’s top-ranked semiconductor sub-sectors and stocks:
AI Compute
Bank of America ranks AI compute as its most preferred U.S. semiconductor subsector, singling out stocks including Nvidia, Broadcom, and Advanced Micro Devices as its top picks.
In a recent development, European AI provider Mistral raised $830 million in debt to purchase thousands of Nvidia chips for a new data center. Separately, both Wolfe Research and Cantor Fitzgerald reiterated positive ratings on the company, citing AI momentum.
Broadcom, along with Carahsoft, secured a five-year, $970 million blanket purchase agreement with the U.S. Defense Information Systems Agency to consolidate software contracts. The company also announced it has begun volume shipments of its Tomahawk 6 switch chip.
Advanced Micro Devices announced a collaboration with Celestica to develop the Helios rack-scale AI platform.
Semicaps
The semiconductor capital equipment (semicap) ranks as the second most preferred subsector, with BofA highlighting Lam Research, Applied Materials, MKS Instruments as its favorite picks.
AI Networking
Marvell Technology, Credo Technology, and Macom Technology Solutions rank third as AI networking infrastructure remains critical for data center buildouts.
Marvell Technology recently unveiled a new 260-lane PCIe 6.0 switch designed for AI data centers. The company also announced a long-term collaboration with Mojo Vision to support the commercialization of its micro-LED platform.
Memory
Despite recent weakness, the memory subsector and Micron Technology rank fourth.
Bank of America notes peak margin concerns remain, though the stock trades at just the low end of its historical five to ten times out-year price-to-earnings ratio, based on $75-100 earnings per share consensus for calendar year 2027.
Selected Analogs
Analog Devices and Allegro MicroSystems round out the top five positions in the semiconductor sector rankings.
Analog Devices received several price target increases from firms including Cantor Fitzgerald, TD Cowen, and KeyBanc. Analysts cited strong quarterly results and outlook, driven by demand in data center, automotive, and communications segments.
EDA
Electronic design automation companies Cadence Design Systems and Synopsys rank sixth in the preference order.
Synopsys launched new chip design and verification products that integrate technology from its recent Ansys acquisition.
Consumer
Consumer-focused semiconductor stocks rank seventh in Bank of America’s sub-sector preferences.
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