According to the Zhitong Securities App, Bank of America recently released a report stating that the bull market in the semiconductor industry is far from over, and the rise of artificial intelligence is expected to push the industry to its peak in mid-2026. Since the AI boom swept the market, the SOX index, which tracks the semiconductor industry, has surpassed the benchmark index, rising by up to 26% so far this year, with a premium of 4 to 5 times compared to the S&P 500 index.

Despite possible market pullback due to recent factors such as the US election or monetary policy, analysts believe the bullish trend still has sufficient reasons. After experiencing a downturn cycle, the chip industry usually enters an upswing cycle lasting up to 10 quarters, and this pattern has just begun.

Bank of America pointed out that the current upturn cycle began at the end of 2023 and is currently only in the third quarter, which means that strong growth momentum may continue until mid-2026. However, semiconductor stocks (SOX) may change direction 6 to 9 months prior to the turning point of the cycle, so the semiconductor industry may reach its peak in the second half of 2025 or one year later.

In addition, after last year's inventory adjustments, it is expected that the semiconductor industry will achieve double-digit annual sales growth in 2025.

Bank of America provides investors with three beneficial investment themes in the report: cloud computing, autos, and the growing complexity of semiconductor manufacturing.

First of all, NVIDIA (NVDA.US) and Broadcom (AVGO.US) are the preferred investment targets. Bank of America believes that these two companies have huge potential for continued growth, with target prices set at $1,500 and $1,680 respectively.

For NVIDIA, part of the reason is the market's optimistic expectations for its expansion in AI data centers, which provides strong demand for the company's hardware products. Currently, data center systems account for about 5% of global IT spending, or $260 billion, but this figure is expected to grow to $360 billion by 2028.

At the same time, the importance of chips in the automotive industry is increasing, which is expected to boost the performance of stocks such as NXP Semiconductors (NXPI.US) and give NXP Semiconductors a target price of $320.

Bank of America stated that the market competition for industrial/automotive chip stocks is low and can provide diversified investment away from artificial intelligence, making it easier to compare during the 2025 fiscal year. The end of the inventory adjustment may support double-digit sales growth in the 2025 fiscal year.

Finally, the increasing complexity of semiconductor manufacturing will support the valuation of this industry, proving that the trading range of stocks such as KLA Corporation and Synopsys is reasonable. Bank of America maintains a target price of $890 and $650 for these two companies respectively.

The bank's analysts pointed out that the premium of the world's top five semiconductor equipment stocks is 46%, i.e. a P/E ratio of 26 in 2025, and the historical average is 18 times. They expect that even in the recent low point of the wafer fab equipment cycle, the premium will continue due to the leverage effect of fundamentals and emotions, the complexity of chips driven by AI, global repatriation efforts, and a profit margin of more than 25% in free cash flow.