Nvidia, Micron Lead Top Semiconductor Picks, AI Bubble Concerns Have Not Derailed Outlook: Analyst

As investors debate whether the AI boom has gone too far, RBC Capital Markets is laying out why the semiconductor sector still has room to run, and which corners of the market stand to benefit most.

Analyst Srini Pajjuri said concerns about an AI bubble have not derailed the semiconductor outlook, as hyperscale capital spending should remain strong for the next 18 to 24 months amid intense competition for AI leadership.

AI monetization continues to improve and noted that the largest hyperscalers' balance sheets do not appear stressed, even as infrastructure bottlenecks and project delays emerge, as per the analyst.

He expects any eventual slowdown in spending to unfold gradually, not abruptly, and advised investors to maintain balanced exposure to AI-focused semiconductor stocks.

GPU And Compute Leaders

Pajjuri said graphics processing units remain central to the AI buildout.

He noted limited threat to Nvidia Corp's (NASDAQ:NVDA) full-stack dominance despite progress in custom Application-Specific Integrated Circuits and GPU rivals.

The analyst expects hyperscaler spending to support Nvidia's order visibility and believes valuation already reflects some slowdown risk.

He views Advanced Micro Devices, Inc. (NASDAQ:AMD) as a credible secondary GPU supplier following its OpenAI deal.

However, he also warned that AMD's valuation already prices in near-term ramps, limiting upside until later product cycles.

For Broadcom Inc. (NASDAQ:AVGO), Pajjuri acknowledged momentum in custom accelerators.

However, the analyst questioned the durability of certain customer programs and flagged valuation and margin pressures.

HBM And Memory Beneficiaries

Pajjuri called high-bandwidth memory a transformative secular driver that should reduce cyclicality in the memory market.

The analyst expects HBM to account for roughly a quarter of DRAM industry revenue and to grow at a 40%+ CAGR through 2028.

He said tight supply should keep memory demand ahead of supply into 2027, benefiting Micron Technology Inc (NASDAQ:MU) in particular, where he expects persistent DRAM tightness and meaningful earnings upside.

Pajjuri added that GenAI workloads are becoming more memory-intensive, supporting demand for HBM even as higher memory prices pose a potential headwind to PCs and smartphones.

WFE And Semiconductor Equipment

Pajjuri said wafer fab equipment spending should retain an upward bias over the next two years, even with some slowdown in China.

The analyst expects memory-related Wafer Fab Equipment spending to outpace logic spending due to extremely tight supply conditions.

He highlighted Lam Research Corp (NASDAQ:LRCX), Applied Materials Inc (NASDAQ:AMAT), and ASML Holding NV (NASDAQ:ASML) as key beneficiaries.

Other AI And Infrastructure Plays

Pajjuri said Marvell Technology Inc (NASDAQ:MRVL) stands out among networking and connectivity names, while Astera Labs Inc NASDAQ: ALAB) benefits from AI system interconnect trends.

He added that Arm Holdings Plc's (NASDAQ:ARM) expanding data center footprint and pricing power support long-term growth, even as smartphone demand faces memory-related pressures.

Overall, he said AI has split the semiconductor sector into "haves and have-nots," making selectivity critical as valuations sit above historical averages and any hyperscale spending slowdown could significantly impact stock prices.

NVDA Price Action: Nvidia shares were up 2.96% at $188.57 at the time of publication on Thursday, according to Benzinga Pro data.

Image via Shutterstock