Sometimes the stars align, and according to Bank of America Securities analyst Vivek Arya, that's exactly what's happening in the semiconductor industry right now. After spending time at CES in Las Vegas meeting with more than a dozen chip company management teams, Arya came away more confident than ever in his above-consensus forecast: 30% year-over-year growth and the industry's first-ever $1 trillion year in chip sales.
That's not just optimism talking. Arya identifies three powerful tailwinds converging at once. First, there's strong demand visibility in both the near and medium term, meaning companies can actually see their order books filling up. Second, secular growth from AI is happening alongside cyclical industrial inventory replenishment, which is a fancy way of saying the industry gets to benefit from both long-term trends and short-term recovery simultaneously. Third, chipmakers have solid pricing power, allowing them to pass rising supply chain costs along to customers without losing business.
While CES showcased some still-early applications in physical AI and robotics, the real story came from behind-the-scenes company meetings. And Arya clearly liked what he heard from certain players more than others.
The most positive sentiment emerged from meetings with Nvidia Corp (NVDA), Credo Technology Group Holding Ltd (CRDO), Microchip Technology Inc (MCHP), Analog Devices Inc (ADI), and Micron Technology Inc (MU). Meanwhile, sentiment was more in line with expectations at Marvell Technology, Inc (MRVL), ON Semiconductor Corp (ON), Ambiq Micro, Inc (AMBQ), Qualcomm Inc (QCOM), Skyworks Solutions, Inc (SWKS), Intel Corp (INTC), and Ambarella Inc (AMBA).
The broader market seems to agree with this bullish take. Despite persistent handwringing about market "bubbles" (both real and perceived), the PHLX Semiconductor Sector Index, known as the SOX index, has climbed about 7% year-to-date and an impressive 45% over the past year. That performance leaves the S&P 500 in the dust, as investors pile into multiple secular and cyclical growth themes all at once.
Nvidia: The Undisputed Champion with an Attractive Price Tag
After hosting Nvidia CFO Colette Kress for an investor dinner and participating in an industry panel during the company's CES keynote, Arya concluded that Nvidia's leadership position remains unmatched. And he's backing that up with a Buy rating, calling it his top sector pick.
The numbers tell a compelling story about Nvidia's competitive moat. The company's projected $26 billion in calendar year 2026 R&D spending is roughly 1.5 times the combined R&D budgets of Broadcom Inc (AVGO), Advanced Micro Devices, Inc (AMD), and Marvell. That's the kind of investment that keeps competitors up at night.
Arya emphasized Nvidia's full-stack AI strategy, massive scale, and balance sheet strength. At CES, the company highlighted that its next-generation Vera Rubin platform remains on schedule for second-half shipments and will deliver 3.5 times the training performance and 5 times the inference performance compared to Blackwell. Those aren't incremental improvements; they're the kind of leaps that justify continued market dominance.
Demand visibility looks strong too, with potential upside to the roughly $500 billion in combined Blackwell and Rubin orders expected for 2025 and 2026. Nvidia expects to maintain industry-leading gross margins in the mid-70% range despite facing higher wafer and memory costs. There's additional upside potential from China H200 shipments, which Arya estimates could exceed $40 billion pending regulatory approvals.
The analyst's enthusiasm boils down to this: Nvidia offers high-quality growth at what he considers a compelling forward valuation, with a PEG ratio well below large-cap peers. In other words, you're getting best-in-class execution without paying a nosebleed valuation premium.
Credo: When a 34% Drop Creates Opportunity
Recent meetings with Credo Technology's executive team reinforced Arya's Buy rating, even though the stock is trading about 34% below its 52-week high. Sometimes the best opportunities emerge when good companies face temporary skepticism.
Credo leads in active electrical cables, which sounds technical but matters enormously for scaling AI clusters. That leadership position has driven one of the strongest upward earnings revision cycles in the semiconductor sector, with fiscal 2027 EPS estimates up roughly 160% over the past year.
The analyst views the recent sell-off as creating an attractive entry point. Credo's ability to extend the life of copper connectivity aligns perfectly with hyperscalers' preference for proven, reliable deployment solutions. When you're building massive AI infrastructure, you don't want to experiment with unproven technologies.
Management also pushed back on several concerns weighing on the stock, including potential Taiwan Semiconductor Manufacturing Company Ltd (TSM) order cuts, market share losses to peers, or displacement from emerging co-packaged optics alternatives. After hearing their response, Arya remains confident in the bull case.