Source: Caixin.

Bank of America said in its latest report on Monday that the semiconductor bull market is far from over, and the momentum of artificial intelligence (AI) will further push up chip stocks, which may not peak until mid-2026.

Since the first wave of AI frenzy hit the market,$PHLX Semiconductor Index (.SOX.US)$It has outperformed the benchmark index, rising 26% so far this year. The bank said that its trading premium is four to five times that of the S&P 500 index.

"The recent correction may be due to factors such as the US election or monetary policy, but there are ample reasons to remain bullish. They explained that the chip industry usually experiences an upward cycle of 10 quarters after a downward cycle, and this pattern has just begun."

"The current upward cycle began at the end of 2023, so we are currently in the third quarter, which means that strong gains may continue until mid-2016," Bank of America wrote. "More importantly, after the inventory adjustment last year, the industry is expected to accelerate achieving double-digit annual sales growth by 2025."

Three major investment themes

For investors trying to seize this rebound opportunity, Bank of America's report provides three investment themes that will benefit: cloud computing, automotive chips, and "complexity."

First,$NVIDIA (NVDA.US)$ and $Broadcom (AVGO.US)$are both preferred. Bank of America believes that both have great upside potential and gives target prices of $1,500 and $1,680, respectively.

As far as Nvidia is concerned, this is partly due to bullishness about the expansion of AI data centers, which provides strong demand for the company's hardware. The bank said that data center systems currently account for about 5% of global IT spending, or $260 billion. However, by 2028, this number may soar to $360 billion.

At the same time, the increasing importance of chips in the automotive industry should boost stocks such as NXP Semiconductors. Bank of America gives a target price of $320 for NXP Semiconductors.$NXP Semiconductors (NXPI.US)$"Industrial/automotive chip stocks are less crowded, providing the diversification beyond AI. The end of the inventory adjustment may support sales growth to double in the first half of 2015." the bank wrote.

Finally, Bank of America pointed out that the increasing complexity of the semiconductor manufacturing industry should support the continuously rising valuation of the industry, proving that stocks such as KLA Corp (which provides process control and yield management services related to semiconductor manufacturing) and Synopsys (a US electronic design automation company, IC interface IP supplier focusing on chip design and verification, chip intellectual property, and computer security) are trading within a reasonable range.

KLA Corp$KLA Corp (KLAC.US)$are traded within a reasonable range.$Synopsys (SNPS.US)$Trade in a reasonable range for stocks.

Synopsys is a US electronic design automation company and IC interface IP supplier, focusing on chip design and verification, chip intellectual property and computer security.

For the above two companies, Bank of America gives their target prices of $890 and $650 respectively.

Editor/tolk