Nvidia Is Bank of America's Top Chip Pick: AI Demand, Pricing Power Drive Growth

BofA Securities analyst Vivek Arya says secular, cyclical and pricing tailwinds are aligning for U.S. semiconductors.

After meeting with more than a dozen management teams at CES in Las Vegas, the analyst said his confidence has increased in his above-consensus forecast for 30% year-over-year growth and the industry's first-ever $1 trillion year in chip sales.

While CES showcased still-early physical AI and robotics applications, company meetings pointed to three key drivers, including strong near- and medium-term demand visibility, secular growth from AI alongside cyclical industrial inventory replenishment and solid pricing power that allows chipmakers to pass through rising supply chain costs, he noted.

Arya noted the most positive sentiment in meetings with NVIDIA Corp (NASDAQ:NVDA), Credo Technology Group Holding Ltd (NASDAQ:CRDO), Microchip Technology Inc (NASDAQ:MCHP), Analog Devices Inc (NASDAQ:ADI), and Micron Technology Inc (NASDAQ:MU).

The analyst described sentiment as more in line with expectations at Marvell Technology, Inc (NASDAQ:MRVL), ON Semiconductor Corp (NASDAQ:ON), Ambiq Micro, Inc (NYSE:AMBQ), Qualcomm Inc (NASDAQ:QCOM), Skyworks Solutions, Inc (NASDAQ:SWKS), Intel Corp (NASDAQ:INTC), and Ambarella Inc (NASDAQ:AMBA).

Despite persistent concerns about real and perceived market "bubbles," the PHLX Semiconductor Sector Index or SOX index has risen about 7% year-to-date and 45% over the past year, far outpacing the S&P 500, as investors gain exposure to multiple secular and cyclical growth themes, he told.

Nvidia: High-Quality Growth at an Attractive Valuation

Arya said Nvidia's leadership remains unmatched after hosting CFO Colette Kress for an investor dinner and participating in an industry panel during the company's CES keynote.

The analyst emphasized Nvidia's full-stack AI strategy, massive scale, and balance sheet strength, noting that its projected $26 billion in CY26 R&D spending is roughly 1.5 times the combined R&D of Broadcom Inc (NASDAQ:AVGO), Advanced Micro Devices, Inc (NASDAQ:AMD) and Marvell.

At CES, Nvidia highlighted that its next-generation Vera Rubin platform remains on track for second-half shipments and will deliver 3.5x training and 5x inference performance versus Blackwell.

Arya also pointed to strong demand visibility, with potential upside to the roughly $500 billion in combined Blackwell and Rubin orders for 2025 and 2026.

The analyst said Nvidia expects to maintain industry-leading gross margins in the mid-70% range despite rising wafer and memory costs and flagged additional upside from China H200 shipments, which he estimates could exceed $40 billion pending regulatory approvals.

He reiterated a Buy rating, calling Nvidia his top sector pick, supported by compelling forward valuation and a PEG ratio well below large-cap peers.

Credo: Sell-off Creates a Compelling Entry Point

Arya said recent meetings with Credo's executive team reinforced his Buy rating despite the stock trading about 34% below its 52-week high.

The analyst described Credo as the leader in active electrical cables, a critical component for scaling AI clusters.

That positioning has driven one of the strongest upward earnings revision cycles in the sector, with fiscal 2027 EPS estimates up roughly 160% over the past year, he told.

Arya said the sell-off has created an attractive buying opportunity, as Credo's ability to extend the life of copper connectivity aligns with hyperscalers' preference for proven, reliable deployment solutions.

The analyst added that management pushed back on concerns about potential Taiwan Semiconductor Manufacturing Company Ltd (NYSE:TSM) order cuts, share losses to peers or displacement from emerging co-packaged optics alternatives.

Analog Devices: Pricing Power Strengthens the Bull Case

Arya maintained a Buy rating on Analog Devices and reiterated it as his top analog pick.

After meeting with management, Arya said the company implemented list-price increases for channel customers, reflecting strong pricing power driven by differentiated products, a favorable mix tied to aerospace, defense and AI, and catch-up from prior input cost inflation.

While the analyst remains selective in the analog space given macro uncertainty, he said Analog Devices offers a rare balance of defense and offense, combining strong free cash flow generation with pricing leverage and an increasingly attractive product mix.

Price Action: NVDA stock is down 2.44% at $184.51 at publication on Thursday.

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