Even as Wall Street’s broader conviction on artificial intelligence holds firm, short-term positioning fatigue is threatening to unwind the market’s most lucrative trade.
Chip stocks face a sharp near-term drawdown risk, driven less by any operational stumble than by overcrowded portfolio bets colliding with macroeconomic pressure.
Bank of America semiconductor analyst Vivek Arya thinks the PHLX Semiconductor Index has another 10% of downside in it, a call he laid out for clients Monday.
A drop of that size would extend a two-month slide across the sector and pull valuation multiples back to levels last seen before ChatGPT’s 2022 launch.
BofA favours caution on chip stocks in the near-term
The projected pullback reflects a sector straining under heavy institutional weight as much as any deterioration in fundamentals.
Chip stocks sit 13% overweight relative to the S&P 500 – leaving the group exposed to forced selling the moment sentiment turns.
Beyond crowded positioning, Arya pointed to compounding pressures, elevated interest rates, emerging data-center backlash, and complex circular financing arrangements among AI infrastructure players that together could complete a valuation reset already underway.
Both indexes now trade near 20x forward earnings, a parity that erases years of valuation whiplash: chip multiples swung from a 9% discount to the S&P 500 before ChatGPT’s debut to a 15% premium at the height of the AI trade, before recent declines closed the gap.
Arya recommends buying chip stocks on further pullback
Despite flagging near-term downside, the Bank of America analyst recommends treating any further decline as an entry point rather than a warning sign.
Why? Because companies within the semiconductor index are expanding forward earnings per share (EPS) at a compound annual growth rate of roughly 70%.
Measured against that pace of growth, the analyst called the current 20x forward multiple “cheap,” adding that seasonal trading patterns have historically turned bullish heading into year-end.
On that basis, the firm assigned “enhanced buy” ratings to eight names: Nvidia (NVDA), Marvell, Micron, Lam Research, AMD, Intel, Analog Devices, and ON Semiconductor.
Catalysts are already in motion: Marvell is accelerating its custom AI chip rollout, while Nvidia reports quarterly results after Wednesday’s close, with BofA flagging risk from slowing capital-return plans and uneven enterprise demand.
What to look for moving forward?
The tension between crowded short-term positioning and durable secular earnings growth sets up a pivotal test heading into Nvidia’s report tonight.
A pullback tied to softer capital-return guidance could trigger further momentum selling in the immediate session, yet the return of chip valuations to historical parity has already wrung out much of the speculative excess.
From here, execution on custom silicon programs is likely to separate winners from laggards, with specialized suppliers such as Marvell positioned to gain share even as enterprise spending stays uneven.
Rather than signaling a structural break in AI capital expenditure, a further 10% reset would simply realign stock multiples with underlying earnings growth, clearing the runway for a rebound into year-end.
The post BofA warns of another 10% decline in chip stocks appeared first on Invezz
Other Articles
Why is Alphabet stock down today?
