What AI bubble?
New research from Bank of America has thrown cold water on the growing narrative, and instead focuses on the upside the firm sees in chipmakers.
The firm recently laid out its forecast for the coming year in a note to clients, predicting that the AI market will experience some volatility but ultimately finish the year strong as data center buildouts continue and companies double down on manufacturing and equipment spending.
The analysts view the AI market as being roughly halfway through an eight- to 10-year evolution, for which 2026 marks the midpoint. During its second half, they expect to see tech companies continue to upgrade IT infrastructure and continue accelerating AI workloads.
BofA sees a particular opportunity in large-cap companies that are also high-quality sector leaders. It highlighted six chip stocks it says are particularly well-positioned to benefit from AI-capex spending that could reach $1.2 trillion by 2030.
Here are the firms top six picks in that group:
Nvidia: +41% year-to-date.
Broadcom: +52% year-to-date.
Lam Research: 146% year-to-date.
KLA Corporation: +103% year-to-date.
Analog Devices: +30% year-to-date.
Cadence Design Systems: +6% year-to-date.
While Broadcom, Lam and KLA significantly outperformed Nvidia it in 2026, BofA analysts maintain that they see the dominant chipmaker as the undisputed industry leader, noting that it currently trades at half its growth rate and highlighting its promising pipeline of likely catalysts.
That said, BofA values Broadcom at 33 times its anticipated earnings for 2026, predicting that it can go as high as $500 per share in the coming year, due to its high profitability among semiconductor producers and impressive free cash flow.
Analysts see Lam Research as being in an excellent position overall, due to the equipment it produces on which chip fabs are highly dependent. While it notes that the company may be subject to some tariff and inflation-related pain, BofA still sees it as a strategic play on a key corner of the AI manufacturing market.
Additionally, BofA notes KLA’s leading profit margin among chipmakers, highlighting it as one of the industry’s most stable names, which it believes justifies as a higher multiple. It names Cadence Design Systems as its top pick for Electronic Design Automation, but also highlights the risk posed by trade tensions with China.
While it acknowledge’s Analog’s high free cash flow, it notes the possibility of economic downturn negatively impacting the chipmaker if automotive and industrial customers scale back their high-performance chip spending.
Despite these concerns, though, BofA remains highly bullish on this chip stocks as well as some of their smaller cap peers.
“We remain constructive on chip stocks heading into 2026,” BofA says. “While debates around the pace and profitability of AI investments will continue, we believe consensus under-appreciates the mission critical, offensive and defensive nature of capex investments being done by the largest and best funded tech companies.”
