Bank of America told clients on Monday that compute-centric semiconductor companies look increasingly appealing on valuation grounds while investment in artificial intelligence continues to pick up pace. The firm characterized the broader chip sector as a mix of "stretched semicaps, compelling compute, [and] half-full analog," and emphasized relative opportunities inside the compute grouping.
In its note, analyst Vivek Arya singled out four compute names as preferred exposures: Nvidia, Broadcom, AMD and Credo. BofA said those firms are collectively forecast to deliver average sales growth of 42% and adjusted earnings per share growth of 49% across the 2025-2027 period.
Despite those projections, BofA observed that the group trades at what it called a modest multiple - "a 24x CY27 PE or just 0.5x PEG ratio" - language the firm used to argue for an attractive valuation backdrop relative to other chip industry segments. That valuation framing underpins BofA's constructive stance on the four compute names.
The bank also highlighted the role of major cloud providers in supporting continued demand for compute infrastructure, saying it expects the large cloud operators to reaffirm "the mission-critical need to invest in compute infra," a dynamic BofA believes will support double-digit sales growth for the group.
On cloud capital expenditure specifically, BofA pointed to its tracker showing 38% year-over-year growth in cloud capex for 2026, and it left open the possibility that revisions could push that figure "towards 50%+ exiting the year." The firm noted that even as cloud investment rises, "FCF in aggregate is still positive," indicating free cash flow across the group remains supportive.
BofA added that upcoming events and earnings tied to cloud AI, including anticipation around Nvidia's GTC show (Mar 16-19), are expected to reenergize investor focus on the compute segment. That event-related anticipation is cited as another potential catalyst for the group.
Contextual takeaway: BofA frames the opportunity as one of relative value inside the chip sector: certain compute names show high projected growth paired with pricing that, in the bank's view, implies an attractive risk-reward versus other semiconductor sub-sectors.