Buy the dip or wait? BofA maps out 3 scenarios for chip stocks and top picks
Bank of America has outlined three potential scenarios for semiconductor stocks, with a recovery expected in early 2027. Currently, the sector has fallen 37% from its peak, with the Philadelphia Semiconductor Index down nearly 38%. Cheap valuations and corporate buybacks may help ease concerns surrounding AI spending, but investors will likely need to wait for earnings cuts before the sector finds a sustainable bottom.
The bank predicts semiconductor stocks could drop another 12% from current levels, reaching around 12 times forward earnings. Buybacks from companies like Lam Research, as well as Nvidia and Micron's buybacks, may provide support. The SOX has historically gained 42% during recoveries following earnings revisions. While AI spending is projected to decline, it may still represent a $1.5 trillion investment by 2027.
If spending stabilizes, it could still result in a 20% reduction in planned AI infrastructure deployment. Despite the recent downturn, Bank of America still sees value in semiconductor stocks, highlighting Nvidia, AMD, Broadcom, and others as potential beneficiaries of a sharp recovery in AI investment.
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