Bank of America Merrill Lynch published a sweeping semiconductor industry report on the same day the Philadelphia Semiconductor Index suffered its worst single-day drop in more than two years, arguing the selloff ignores an AI-driven demand cycle that now has visible runway through 2028.
Bank of America Merrill Lynch published a sweeping semiconductor industry report on the same day the Philadelphia Semiconductor Index suffered its worst single-day drop in more than two years, arguing the selloff ignores an AI-driven demand cycle that now has visible runway through 2028.
Bank of America Merrill Lynch raised its global semiconductor market forecast to $2.7 trillion by 2030, up from a prior estimate of $2.3 trillion, representing a compound annual growth rate of 28% from 2025. The report, titled "US Semiconductor Sector: Raising Estimates as AI Extends Visibility to 2028," was released June 23 as the Philadelphia Semiconductor Index tumbled 7.9%, Micron Technology Inc. (MU) fell 13%, and South Korea's KOSPI index triggered a circuit breaker after slumping about 10% from a record high.
"The market is confusing a cyclical correction with the structural buildout of AI infrastructure," Vivek Arya, semiconductor analyst at Bank of America Merrill Lynch, said. "Long-term supply agreements provide two to three years of pricing and demand visibility, and we see no memory oversupply before 2028."
The report forecasts semiconductor sales will surge 103% in 2026, with memory chips leading at 298% growth — DRAM up 309% and NAND up 295%. The AI data center system market is projected to expand to about $1.7 trillion by 2030 from roughly $273 billion in 2025. High-bandwidth memory, the specialized DRAM used in AI accelerators, is expected to grow from about $35 billion in 2025 to $246 billion by 2030, a compound annual rate of 34%. Nvidia Corp.'s (NVDA) upcoming Vera Rubin system, scheduled for the second half of 2026, will require 288 gigabytes of HBM4 memory per accelerator, up from about 187 GB per chip in current-generation systems.
The bullish call comes as hyperscaler capital spending continues to accelerate. Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), and Meta Platforms Inc. (META) have all signaled higher 2026 infrastructure budgets, with Bank of America estimating the four companies will collectively spend more than $250 billion on data center buildouts next year. Wedbush analysts described the June 23 selloff as a buying opportunity, saying they disagree with fears of an overheated market.
The report's central thesis is that memory supply will remain constrained even as capital spending surges. Bank of America projects DRAM and NAND supply-demand ratios will stay above 110% through the forecast period, meaning the market will avoid the severe gluts that have historically triggered price collapses. The bank expects no sequential quarterly price declines for DRAM or NAND before 2027.
The apparent paradox — more spending, tighter supply — reflects a structural shift in how memory makers invest. Micron has guided fiscal 2026 capital expenditure above $25 billion, up from $13.8 billion in fiscal 2025, but the majority of that increase is allocated to building cleanrooms rather than purchasing production equipment. The company's new Idaho fab is expected to begin initial output in mid-2027, with volume production ramping in 2028. Its Singapore HBM advanced packaging facility will start contributing in 2027 and reach full production in 2028.
"The cleanroom buildout and equipment installation are now separated by 18 to 24 months," Arya said. "Capital spending in 2026 and 2027 is effectively laying the foundation for 2028 capacity."
Bank of America raised its Micron price target to $1,500 from $950, maintaining a buy rating. The new target implies roughly 50% upside from the stock's closing price of about $1,000 before the June 23 selloff.
The report's most aggressive revision targets semiconductor manufacturing equipment. Bank of America raised its 2028 wafer fabrication equipment spending forecast 23% to $250 billion, up from a prior estimate of $203 billion, representing 32% year-over-year growth. The 2027 forecast was raised to $190 billion from $183 billion, implying 31% annual growth. Overall, WFE spending is projected to compound at 20% annually from 2025 through 2030.
Three factors drive the equipment super-cycle: cleanroom capacity coming online in 2028 after the current construction wave, the transition to 2-nanometer gate-all-around manufacturing (which requires higher equipment intensity per wafer due to lower initial yields), and memory technology upgrades including the shift from HBM3 to HBM4 and HBM5 and NAND migration from 300 layers to more than 400 layers.
Applied Materials Inc. (AMAT), the largest U.S. semiconductor equipment maker, saw its price target raised to $720 from $540. Other equipment stocks including KLA Corp. (KLAC), Lam Research Corp. (LRCX), and ASML Holding NV (ASML) are expected to benefit from the spending cycle, though Bank of America did not revise targets for all names in the sector.
Not all semiconductor end markets share in the AI boom. The report forecasts smartphone chip revenue will decline 13% in 2026, PC chip revenue will fall 9%, and consumer electronics chips will drop 7%, reflecting structural unit declines in those categories. Automotive chips are expected to grow 4% and industrial chips 18%, driven by inventory restocking and rising chip content per vehicle.
Bank of America's report implies that investors who sell semiconductor stocks on macro fears risk missing a demand cycle with unusually long visibility. The key risk to the thesis is a slowdown in hyperscaler capital spending, which the bank considers unlikely given that the four largest cloud providers are competing to secure limited supply of HBM and advanced packaging capacity through 2028.
This article is for informational purposes only and does not constitute investment advice.
