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Investing.com -- Data center investment remains the primary driver heading into first-quarter semiconductor earnings, with major U.S. hyperscalers preparing to report results in coming weeks.
Bank of America’s latest tracker shows first-quarter global hyperscale capital expenditure reached $166 billion, up 13% quarter-over-quarter and 87% year-over-year.
Looking ahead, the firm projects capital expenditure of $750 billion for 2026 and $872 billion for 2027, representing year-over-year growth of 57% and 16% respectively.
While capital expenditure sustainability into 2027 remains uncertain, recent data center buildout partnerships and announcements over the past two months have improved visibility.
The bank expects cloud hyperscale free cash flow margins to improve toward 5% to 10% over the next few years as sales and return on investment strengthen.
Bank of America highlights that AI compute sales from NVIDIA, Broadcom, and AMD could reach $180 billion to $200 billion in incremental year-over-year sales in 2027, exceeding 50% growth.
This outlook surpasses current hyperscale cloud capital expenditure growth projections of $120 billion year-over-year.
The firm notes that hyperscalers represent just 60% to 70% of global AI capital expenditure, suggesting total cloud spending could need to exceed $1.0 trillion for vendor expectations to materialize.
Here are Bank of America’s top AI stock picks:
1. Nvidia (NVDA): The firm sets a $300 price objective based on 28 times 2027 price-to-earnings ratio excluding cash. This valuation reflects NVIDIA’s leading position in AI compute and networking markets, balanced against risks including gaming market cyclicality and power access concerns.
In recent developments, federal prosecutors charged the co-founder of Super Micro Computer in a scheme to illegally divert servers containing NVIDIA’s chips to Chinese customers in violation of U.S. export controls.
2. Broadcom Inc (AVGO): Bank of America assigns a $450 price objective based on 26 times 2027 price-to-earnings ratio. The target reflects double-digit earnings growth and best-in-semiconductors profitability and free cash flow generation.
Broadcom announced an extended partnership with Google and Anthropic for its TPU technology through 2031. Following this, Seaport Global Securities downgraded the company to Neutral from Buy, citing increasing industry constraints.
3. Marvell Technology (MRVL): The $125 price objective uses 28 times fiscal 2028 price-to-earnings ratio. The valuation considers improved visibility for major customer ASIC projects and a broadening AI portfolio across connectivity, switch, and compute segments.
A recent strategic partnership between Marvell Technology and Nvidia, which included a $2 billion investment from Nvidia, prompted an upgrade to Overweight from Barclays and a price target increase from BofA Securities.
4. Advanced Micro Devices (AMD): The firm sets a $280 price objective at 27 times 2027 non-GAAP earnings per share, reflecting AI growth and CPU share gains.
Advanced Micro Devices projects revenue growth of 32% year-over-year in the first quarter, based on increasing demand for its products in data centers. Subsequently, Erste Group upgraded the company’s stock to Buy from Hold.
5. Credo Technology (CRDO): Bank of America assigns a $160 price objective based on 27 times 2027 price-to-earnings ratio, in line with high-growth compute and optical semiconductor peers.
Credo Technology announced it had reached confidential settlement and license agreements with both TE Connectivity and Molex, ending all patent disputes between the companies.
6. KLA Corporation (KLAC): The $1,850 price objective uses 40 times 2027 price-to-earnings ratio, above historical ranges due to leading profit margins and longer lead times.
At its recent Investor Day, KLA Corporation increased its calendar year 2026 outlook and established a 2030 target model that includes revenue of $26 billion. Following the event, Wolfe Research raised its price target on the company.
7. Lam Research (LRCX): The firm sets a $285 price objective at 41 times 2027 price-to-earnings ratio, supported by ongoing memory and foundry capital spending cycles.
Lam Research announced a leadership transition, promoting Sesha Varadarajan to Chief Operating Officer.
The company also received a downgrade to Hold from Buy by Erste Group, which cited increased margin risks.
8. Applied Materials (AMAT): Bank of America assigns a $420 price objective based on 29 times 2027 price-to-earnings ratio, reflecting potential wafer fabrication equipment growth.
Applied Materials introduced two new chipmaking systems designed for manufacturing Gate-All-Around transistors at 2nm and smaller process nodes. The company also announced it will use a new UPS logistics facility in Taiwan as an Asian distribution center.
9. M/A-Com (MTSI): The $260 price objective uses 48 times 2027 price-to-earnings ratio, justified by data center strength and expanding margins.
MACOM Technology Solutions reported better-than-expected results for the first quarter of fiscal year 2026, with revenue of $271.6 million. Following the earnings report, both Benchmark and Stifel raised their price targets on the company.
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