Bank of America Sees Semiconductor Selloff as Prime Entry Point

Key Takeaways

Table of Contents

The Philadelphia Semiconductor Index trails the S&P 500 by 18% from peak levels, presenting what Bank of America views as a strategic entry point
BofA reaffirms Buy ratings on three European chip stocks: ASML, ASM International, and STMicroelectronics
Analysts project wafer fabrication equipment expenditure will exceed $250 billion by 2028
A massive Samsung-Broadcom foundry agreement worth $200 billion over five years supports the positive forecast
Nokia receives a Buy rating from BofA, while Ericsson and Logitech earn Underperform designations

Semiconductor stocks have experienced significant pressure in 2026, yet Bank of America analysts believe the weakness represents a compelling buying opportunity rather than a fundamental deterioration.

From peak levels, the Philadelphia Semiconductor Index has lagged the S&P 500 by approximately 18%. Research led by Didier Scemama suggests this magnitude mirrors historical corrections triggered by trade uncertainties, standing well short of the 30% declines characteristic of genuine cyclical downturns witnessed in 2011, 2022, and the 2024-2025 period.

Bank of America characterizes the current pullback as trade-policy-driven rather than fundamentally rooted. This crucial distinction, according to the firm, hasn’t been fully appreciated by market participants.

The sector currently commands valuations representing roughly a 3x discount to average 2028 consensus multiples. Semiconductor capital equipment manufacturers trade at an even more pronounced 6-7x discount, which BofA identifies as the most compelling valuation entry point in recent memory.

BofA’s Preferred Semiconductor Investments

ASML stands as BofA’s top large-cap selection among European equities. The firm maintains its Buy rating, citing elevated average selling prices and robust gross margin profiles as fundamental tailwinds. BofA’s 2027 and 2028 profit projections for ASML exceed Wall Street consensus by 6-7%.

ASML Holding N.V., ASML

ASM International is projected to surpass second-quarter earnings expectations by approximately 11% when results are announced Tuesday following European trading hours. BofA highlights capital spending boosts from TSMC and Intel, robust performance in Chinese markets, and revitalization in analog and power semiconductor segments.

STMicroelectronics rounds out the trio of Buy-rated semiconductor capital equipment names. BofA anticipates earnings capacity reaching $4.50 or higher in 2028, supported by a 2x book-to-bill ratio and manufacturing optimizations expected to contribute four percentage points to gross margin expansion by mid-2028.

Factors Supporting the Bullish Thesis

BofA projects wafer fabrication equipment investment will climb to no less than $250 billion in 2028, representing consecutive years of approximately 30% year-over-year expansion.

A critical foundation for this outlook is a reported five-year foundry collaboration between Samsung and Broadcom valued at $200 billion. Recent capital expenditure announcements from TSMC and Intel provide additional validation for these projections.

TSMC delivered second-quarter 2026 revenue of $40.2 billion, exceeding both internal guidance and analyst estimates. Gross margin reached 67.7%, surpassing expectations. The chipmaker elevated its full-year 2026 revenue growth forecast to marginally above 40%, propelled by robust artificial intelligence chip demand.

BofA additionally dismissed concerns regarding potential memory pricing deterioration, noting that long-term supply agreements secured by hyperscalers, automotive manufacturers, and consumer original equipment manufacturers substantially reduce crash risk.

Beyond equipment manufacturers, Bank of America designated Nokia as a Buy based on €2.8 billion in order intake that analysts believe remains underappreciated by the market. Ericsson and Logitech both received Underperform ratings, with the bank expressing concerns about margin pressure and growth constraints for each company.

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