I began investing within the Nineteen Nineties and joined Wall Avenue on the promote facet in 1997. One of many first issues my mentor taught me was that “semiconductors are cyclical.”
Like most good recommendation, I ignored it. And paid a stiff tuition studying for myself how semiconductor booms and busts affect shares, particularly memory-maker Micron, an organization significantly vulnerable to eye-popping pops and drops in good and dangerous instances.
I could not assist however have my mentor’s recommendation ringing in my ears after I learn Financial institution of America’s newest outlook for semiconductor shares. The financial institution’s analysts painted a rosy image, suggesting an evolving supercycle that may very well be a robust tailwind for semiconductor tools and manufacturing shares, together with these tied to reminiscence capital expenditures as Micron and rivals ramp spending to spice up fab capability.
The rationale behind all of it – synthetic intelligence — should not shock you. Everybody has been knee deep in AI in 2025, a method or one other. Firms are researching easy methods to use it to spice up productiveness and unlock insights from information siloes, and more and more, on a regular basis People are embracing it as a extra sturdy different to conventional search.
The flurry of curiosity has sparked a gold rush of AI analysis and improvement, straining current infrastructure and underpinning pricing for semiconductor producers.
Till not too long ago, Nvidia has been the obvious beneficiary, with its gross sales hovering from $26.9 billion in 2022, when ChatGPT was launched, to an estimated $213.2 billion this 12 months. These days, although, it is Micron that is arguably seeing probably the most substantial surge.
The corporate reported that income jumped 56% final quarter to $13.6 billion as rocketing reminiscence spot costs impacted contract pricing. Micron’s steerage, nevertheless, was much more jaw-dropping. CEO Sanjay Mehrotra says Micron’s gross sales and revenue will soar to $18.7 billion and $8.42 per share this quarter (it reported EPS of $4.78 final quarter).
Unsurprisingly, sky-high demand is prompting Micron to motion. Lately, it deserted its shopper enterprise to shift capability to supplying reminiscence for AI information facilities. It additionally plans to considerably increase its capital expenditures (capex) to extend manufacturing capability — one thing Financial institution of America believes will supply tailwinds for prime semiconductor tools gamers, together with Lam Analysis (LRCX), KLA Corp. (KLAC), and Utilized Supplies (AMAT).
Demand for high-bandwidth reminiscence is sparking reminiscence costs and driving curiosity in Micron and semi tools producers.Shutterstock
“Coaching is considerably and more and more compute-intensive, however early LLM calls for had been manageable. At present, compute wants are accelerating quickly, significantly as extra fashions transfer into manufacturing,” wrote JP Morgan strategist Stephanie Aliaga in October. “Nvidia estimates that reasoning fashions answering difficult queries may require over 100 instances extra compute in comparison with single-shot inference.”
Knowledge facilities are speeding to improve tools that may deal with the rising demand for compute energy, and their focus has expanded to incorporate not solely high-powered GPUs made by Nvidia (and Superior Micro Units), but in addition different parts that may ease bottlenecks, equivalent to reminiscence.
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Because of this, reminiscence demand is outpacing provide, resulting in a surge in spot market pricing. That is been nice information for income and revenue development on the largest gamers — Samsung, SK Hynix, and Micron (MU) — which market DRAM (Dynamic Random Entry Reminiscence), NAND flash, and Excessive Bandwidth Reminiscence (HBM), a high-demand reminiscence designed for AI purposes.
The longer spot costs stay larger, the better the stress to order and pay extra for reminiscence, fueling hypothesis {that a} new reminiscence supercycle is upon us.
That is caught the eye of buyers on and off Wall Avenue, together with me (I purchased some Micron shares on Nov. 26), who acknowledge that the increase section of the semiconductor cycle can reward buyers with good-looking returns. For instance, Micron’s shares are up 229% year-to-date, together with a 67% rally over the previous three months.
Micron is a pure play that advantages from rising reminiscence demand. Nevertheless, it is not the one winner prone to revenue from it.
Capital expenditure plans present tailwinds for semiconductor tools makers who promote the machines utilized in fabs by the trade to fabricate semiconductors.
The semiconductor tools trade is already using AI demand-related waves tied to Nvidia and AMD‘s GPUs, in addition to in-house silicon tasks at Google and Amazon, that are growing TPUs, a sort of ASIC, through Broadcom and Marvell Applied sciences, for particular AI duties.
It additionally does not harm that President Donald Trump’s commerce technique features a main push to spice up home know-how manufacturing, sparking fab tasks that may require new tools from corporations like KLA Tencor, Utilized Supplies, and Lam Analysis.
“To handle tight supply-demand circumstances extending past 2026, we now mission our capital spending in fiscal 2026 to be roughly $20 billion weighted to the second half of the fiscal 12 months,” mentioned Micron CFO Mark Murphy throughout its latest earnings name.
In brief, reminiscence demand is solely the newest in a string of optimistic developments supporting semi tools gross sales, providing alternatives for buyers in 2026, in accordance with Financial institution of America.
“We forecast 2026 to function one other ~30% development in the direction of the primary $1tn for semiconductor gross sales, supported by practically double-digit YoY wafer fab tools (WFE) gross sales development,” wrote Financial institution of America analysts in a analysis be aware to shoppers shared with me.
Financial institution of America’s analysts highlighted a slate of semiconductor performs they count on to carry out nicely in 2026, with semiconductor tools shares listed alongside the acquainted names of Nvidia and Broadcom.
“We proceed to love semicap tools and forecast 10%/14% YoY development in CY26/27E in the direction of $131bn/$150bn pushed by fab upgrades to help high-bandwidth reminiscence, larger layer rely NAND, modern logic (3nm/2nm) and superior packaging,” wrote BofA analysts.
“Semicap buying and selling at a premium to historic multiples, however we see potential for continued EPS upgrades given consensus fashions’ bottom-up gross sales development (6-8% annual) beneath our top-down WFE (10%+) forecast. China restrictions stay a key issue, however we assume the geopolitical scenario to stay establishment,” wrote the analysts.
The most important semi tools shares on Financial institution of America’s record are Lam Analysis (LRCX), KLA Corp. (KLAC), and Superior Supplies (AMAT).
“We count on semicaps to outperform in CY26 as upstream beneficiaries of capability expansions and tech upgrades to help multi-year AI infra demand. We count on upside in C2H’26 and CY27 as visibility into capex plans and fab ramp timelines improves,” wrote Financial institution of America.
All three of these shares have been huge winners in 2025, and Financial institution of America expects extra positive aspects in 2026.
“As we enter the second section of the AI buildout (CY25-28E), we expect this WFE upcycle is extra highly effective and sturdy than earlier ones, suggesting continued semicap outperformance in CY26,” mentioned the analysts.
Financial institution of America’s lead analyst, Vivek Arya, steered KLA is a best-in-breed inventory throughout a latest convention name I attended, noting it is the one inventory in his protection that he has by no means downgraded from a ‘purchase’ score.
Arya believes that course of management, like KLA, will “achieve 100 bps of share to 13% of WFE” in 2026. He additionally thinks etch/dep (AMAT/LRCX) “may develop to 42% of share,” up 3% since 2023. He cites NAND and HBM as contributing to positive aspects for all three corporations.
Free money stream margins at AMAT, LRCX, and AMAT have already expanded from beneath 15% in 2023 to over 20%, and Arya thinks we may see FCF margins of 20% to 30% via 2028.
Because of this, Financial institution of America not too long ago elevated its KLA Tencor worth goal to $1,450 from $1,400 and its Lam Analysis inventory worth goal to $195 from $165.
Financial institution of America additionally charges Utilized Supplies a “purchase” with a inventory worth goal of $300, up from $250 beforehand.
Oh, and as for Micron, they upped their goal to $300 from $250 on Dec. 18 after outcomes prompted them to ratchet their 2026 earnings estimate 62% larger to $37.25, a whopping 230% above 2025 forecasts.
