Nvidia (NVDA), Broadcom (AVGO), and AMD (AMD) are among Bank of America’s top picks in the semiconductor industry as it believes investors should keep with the artificial intelligence spending boom.
“We remain constructive on AI related semi, memory and semicap stocks despite expected volatility,” analysts at the firm wrote in a note to clients. “This week’s CES trade show could add new growth vectors in physical (robotics) and edge AI (on-device) alongside ongoing cloud build out.”
Noting that there is roughly $600B in capex spending this year, AI is still the dominant theme, though utilization has come to the forefront of investor’s minds. And while the free cash flow position of the top U.S.-based hyperscalers — a group that includes Amazon (AMZN), Google (GOOG) (GOOGL) and Microsoft (MSFT) — can help cushion some concerns, there is still likely to be scrutiny in the sector, the analysts added.
Delving deeper, the analysts said that Nvidia is the “best-positioned” among the group — which also includes Lam Research (LRCX), KLA Corp. (KLAC), Credo Technologies (CRDO) and Teradyne (TER) — and noted that recent acquisitions can deepen Nvidia’s competitive moat.
“NVDA’s product roadmap and recent licensing/M&A underscore a strategy to optimize the full AI stack—from networking (Mellanox, Enfabrica) to specialized inference (Groq, Rubin CPX) to enterprise AI (A121 Labs) and GPU workload management (SchedMD),” the analysts explained. “Also underappreciated is NVDA’s tight supply-chain alignment, which may confer an advantage in a wafer- and memory-constrained environment versus internal ASIC approaches. Next-gen Blackwell-trained frontier LLMs OpenAI (OPENAI) are expected … could further tilt share toward NVDA relative to (Google) TPU-based stacks.”