TLDR
- Bank of America named five top AI chip stock 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
- The bank warns that fading confidence in AI, not rising bond yields, is the biggest risk to stocks right now
- The top 20 S&P 500 performers gained $1.7 trillion since August 31 while the other 480 stocks lost $1.9 trillion combined
- Chip stock valuations still look reasonable, with the SOX index trading below its average since ChatGPT launched
Bank of America released a note naming its top semiconductor stock picks for the fourth quarter. The five companies are Nvidia, Intel, Marvell, Micron, and Lam Research.
Analysts based the picks on seasonal trends. They found that the fourth and first quarters have been the strongest periods for chip stocks since 2010.
During that stretch, these stocks beat the S&P 500 by 300 to 500 basis points on average. Each pick also has a specific event tied to it.
Why BofA Picked These Five Stocks
Nvidia has upcoming GTC tradeshow events and expanded stock buybacks planned. Intel is seeing stronger demand tied to agentic CPUs and could benefit from new foundry deals.
Micron is starting a new buyback program on December 9. Marvell has an Analyst Day scheduled for October 6, along with growth in custom chip orders.
Lam Research could pick up market share in both memory and logic chip categories. BofA tied each company to a near-term catalyst rather than a long-term forecast.
The bank also raised its outlook for AI data center spending. It now expects the market to hit $2.2 trillion by 2030, up from its earlier estimate of $1.8 trillion.
That works out to roughly 40% annual growth. BofA said demand for AI agents and competition between AI labs should keep spending high.
The bank added that any slowdown in AI development, or new safety rules, would likely increase computing needs rather than shrink them. Combined spending from major U.S. and Chinese cloud companies is expected to hit about $1 trillion this year.
That number could rise to $1.4 trillion by 2027. By 2030, BofA projects spending could reach $2 trillion to $3 trillion.
Despite the high spending forecasts, BofA said chip valuations still look reasonable. The SOX semiconductor index is trading at 21 times forward earnings, which is 12% below its median level since ChatGPT launched in late 2022.
A Warning About Market Confidence
In a separate report, BofA strategists flagged a different risk. They said the biggest threat to U.S. stocks is not rising bond yields.
Instead, it is the chance that investors lose confidence in AI. BofA calls this the “AI put,” a term borrowed from the older idea of a “Fed put.”
Strategists pointed to recent market data to support this. 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, which has less AI exposure than the S&P 500 or Nasdaq, has lagged behind too.
BofA noted one key difference between the AI put and the Fed put. The Fed put depends on one institution’s decisions, while the AI put depends on the confidence of millions of individual investors.
More than $1 trillion has gone into data center construction since late 2022, according to Goldman Sachs estimates. Analysts covering tech companies expect cash flows to grow sharply by 2028.
Analysts covering the industries that would actually pay for AI services remain more cautious about that timeline. BofA said there is a point where rising yields would start to hurt stocks.
The bank believes that threshold is higher than most investors currently expect. If AI confidence drops while yields keep climbing, BofA said the combination could deepen losses across markets.
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