Bank of America’s semiconductor team has identified eight chip stocks as enhanced buying opportunities, citing a favorable risk-reward profile despite ongoing near-term pressures. The bank, in a client note issued on Tuesday, emphasized that the group remains fundamentally attractive even as macro headwinds, positioning risks and valuation concerns cap near-term performance.
The eight names highlighted by BofA analyst Vivek Arya include Nvidia, Marvell, Micron, Lam Research, AMD, Intel, Analog Devices and ON Semiconductor. The firm noted that the semiconductor group is currently overweight by 13% versus the S&P 500, reflecting elevated positioning that could amplify volatility in the near term.
BofA projects roughly 10% further downside risk to the PHLX Semiconductor Sector Index (SOX), which would unwind recent gains and return valuations to pre-ChatGPT levels. The bank argues that such a discount is unjustified given the group’s earnings growth trajectory, projecting a 70% compound annual growth rate through 2028 against a forward multiple of about 20 times.
Seasonal tailwinds are expected to support the sector in the fourth and first quarters, providing a potential buffer against current headwinds. Among individual names, Nvidia remains a focal point. While another earnings beat-and-raise is anticipated, concerns persist over the company’s extensive funding of customers and suppliers, which BofA suggests may dilute earnings quality. The bank proposes that Nvidia could follow Apple’s post-2012 strategy by increasing cash returns to shareholders, targeting a payout ratio of 75% or more of free cash flow from the current level of around 50%.
For long-term investors, Lam Research and Micron were singled out as preferred “picks-and-shovels” plays, reflecting their structural roles in semiconductor manufacturing and memory markets.
