BofA Sees Buying Opportunity in Semiconductors After 18% Sector Underperformance

A recent selloff has left the semiconductor sector trading at its most attractive valuation in years, creating an "unexpected buying opportunity" for investors, according to a Bank of America research note published Monday.

A Market Misreading

Analysts led by Didier Scemama highlighted that the Philadelphia Semiconductor Index (SOX) has underperformed the S&P 500 by 18%. They noted this drawdown is comparable to periods of market stress like the 2015 China slowdown (-17.3%) and the 2018 U.S.-China trade tensions (-17%), but well below the roughly 30% declines seen in full cyclical downturns.

BofA frames the current weakness as being driven by trade tensions rather than a deterioration in fundamentals, a distinction the bank believes the market is misinterpreting. "Given strong fundamentals, we think the sector looks highly attractive," the analysts wrote, pointing to significant valuation discounts compared to historical averages.

Long-Term Growth Drivers

At the core of BofA's bullish thesis is a forecast for Wafer Fab Equipment (WFE) spending to reach at least $250 billion by 2028. This outlook is supported by long-term supply agreements signed by major AI, logic, and memory customers, as well as increased capital expenditure plans from industry giants like TSMC and Intel.

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The bank also pushed back on bearish arguments regarding a potential collapse in memory chip pricing. "Fears of memory pricing crash seem unfounded in our view given LTAs signed by all major hyperscalers, automotive and consumer OEMs," the note stated.

BofA's Top Picks

Bank of America identified several key stocks poised to benefit, particularly among semiconductor capital equipment suppliers ("semicaps") where it sees the highest visibility.

• ASML: The firm's preferred European large-cap pick, citing structurally higher average selling prices and gross margins. BofA's earnings per share estimates for 2027 and 2028 are 6-7% above the consensus.
• ASM International: BofA expects the company to report earnings 11% above consensus expectations, driven by spending from TSMC and Intel, strength in China, and a recovery in analog and power semiconductor demand.
• STMicroelectronics: While acknowledging recent market disappointment, BofA believes the company's long-term earnings power of over $4.50 per share remains intact, supported by a strong book-to-bill ratio of 2x and manufacturing efficiencies.

Beyond equipment makers, BofA also reiterated a Buy rating on Nokia, citing strong order intake. Conversely, the bank holds an Underperform rating on Ericsson and Logitech due to concerns over their respective margins and growth prospects.