Bank of America is sending a mixed but ultimately bullish message on semiconductor stocks. The bank expects the Philadelphia Semiconductor Index (SOX) could see roughly 10% more downside in the near term, but it believes that weakness could create attractive entry points rather than signal the end of the AI investment cycle.
The interesting part is that BofA has actually raised its long-term AI data-centre spending outlook to about $2.2 trillion, suggesting the bank's concern is more about valuation and positioning than AI demand itself. Recent semiconductor volatility has been driven by worries around high valuations, macroeconomic pressure, resistance to new data centres and concerns about how much AI infrastructure spending is supported by complex financing arrangements.
BofA analyst Vivek Arya sees opportunities across the semiconductor ecosystem rather than simply betting on Nvidia. Recent coverage highlights Nvidia, AMD, Micron and Lam Research among the preferred ways to play the longer-term AI buildout. Nvidia remains a major favourite, while Micron is particularly interesting because AI systems are increasingly constrained by high-bandwidth memory and other memory requirements.
That diversification matters because Nvidia is no longer the only obvious winner from AI spending. In 2026, the broader semiconductor index has significantly outperformed Nvidia, with investors increasingly rotating into memory, manufacturing equipment and competing accelerators.
BofA doesn't appear to believe the AI infrastructure boom is finished. Instead, it thinks investors may be getting too concentrated in the trade after a huge run. A temporary semiconductor correction could therefore be healthy if it resets valuations and allows investors to re-enter companies with strong long-term exposure to AI infrastructure.
The most important distinction is between AI demand and AI stock valuations. Those are not the same thing. AI data-centre investment can continue rising while individual semiconductor stocks still fall 10–20% because investors had priced in too much future growth.
