- Bank of America named five chip stocks as top picks for the fourth quarter: Nvidia, Intel, Marvell, Micron, and Lam Research.
- BofA raised its AI data center market forecast to $2.2 trillion by 2030, up from $1.8 trillion.
- Separately, BofA strategists warned that a loss of confidence in AI, not rising bond yields, is the biggest risk to US stocks.
- The 20 best-performing S&P 500 stocks added about $1.7 trillion in value since August 31, while the other 480 stocks lost about $1.9 trillion combined.
- BofA says the current market resembles the old “Fed put,” but now AI enthusiasm is doing the job of cushioning stock prices.
Bank of America released a note on Thursday naming its top semiconductor stock picks heading into the fourth quarter. The five stocks are Nvidia, Intel, Marvell, Micron, and Lam Research.
Analysts pointed to historical trends. They said the fourth and first quarters have been the strongest seasonal periods for chip stocks going back to 2010. During that stretch, these stocks beat the S&P 500 by 300 to 500 basis points on average.
Each stock has a reason tied to near-term events. Nvidia has upcoming GTC tradeshow events and expanded stock buybacks. Intel is seeing strength in agentic CPU demand and could get a boost from foundry wins.
Micron is set to start a new buyback program on December 9. Marvell has an Analyst Day scheduled for October 6, along with growth in custom chip demand. Lam Research could gain market share across both memory and logic chip categories.
BofA Raises Its AI Spending Forecast
The bank increased its forecast for the AI data center market. It now expects the market to reach $2.2 trillion by 2030, up from an earlier estimate of $1.8 trillion. That works out to about 40% annual growth.
BofA said demand for AI agents, competition between AI labs, and limited chip supply should keep spending high. The bank also said that any slowdown in AI development, or new safety rules for AI models, would likely increase computing needs rather than reduce them.
Combined capital spending from major U.S. and Chinese cloud companies is expected to hit about $1 trillion this year. That figure could rise to $1.4 trillion by 2027 and reach $2 trillion to $3 trillion by 2030, according to BofA.
The bank also noted that chip stock valuations still look reasonable. The SOX semiconductor index is trading at 21 times forward earnings. That is 12% below its median level since ChatGPT launched in late 2022.
The “AI Put” Warning
In a separate report, BofA Global Research strategists raised a different concern. They said the biggest risk to U.S. stocks right now is not climbing bond yields. Instead, it is the possibility that investors lose confidence in AI.
They call this the “AI put.” The term borrows from the older idea of a “Fed put,” where investors believed the Federal Reserve would step in to support markets during trouble. BofA argues that AI enthusiasm is now playing that same supportive role.
Strategists pointed to recent market data. Since August 31, the 20 best-performing S&P 500 stocks added about $1.7 trillion in value. Meanwhile, the other 480 stocks in the index lost about $1.9 trillion combined.
Small and midcap stocks have struggled as bond yields reached multi-decade highs. Financials and utilities have also come under pressure. The Dow Jones Industrial Average, which has less exposure to AI companies than the S&P 500 or Nasdaq, has lagged as well.
BofA noted a key difference between the AI put and the Fed put. The Fed put depends on decisions made by one institution. The AI put depends on the confidence of millions of individual investors, which is harder to predict or measure.
One open question is where returns on AI spending will eventually come from. More than $1 trillion has gone into data center construction since late 2022, according to estimates from Goldman Sachs and other firms.
Analysts who cover technology companies expect cash flows to grow sharply by 2028. Analysts covering the industries that would actually pay for AI services remain far more cautious about that timeline.
BofA said there is a point at which rising bond yields would start to hurt stock prices. However, the bank believes that threshold is probably higher than most investors currently expect. If AI confidence were to drop at the same time yields keep climbing, BofA said the combination could deepen losses across markets.
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