Leading the U.S. stock market into a long bull run, chip stocks are expected to continue their "surge" next year

According to the Zhitong Finance APP, as 2025 approaches, the analyst team at Wall Street financial giant Bank of America has released its "preferred chip stocks list" for the U.S. stock market next year, which includes the "three AI chip giants" that have seen explosive investment interest since 2023. The Bank of America analysts believe that chip stocks may still be one of the best-performing sectors in the U.S. stock market next year, with the contribution to price increases expected to expand from chip companies like the "three AI chip giants," which benefit broadly from the AI boom, to "non-AI" chip stocks such as analog chips and electric vehicle chip stocks that have long underperformed the U.S. stock market and the Philadelphia Semiconductor Index.

The latest report from the Bank of America analyst team shows that one of the core driving forces behind the current "long-term bull market in U.S. stocks" since 2023—chip stocks—has regained global investor favor after being sold off at the beginning of the earnings season. It is expected to continue attracting capital inflows in 2025, making it very likely to once again initiate a "crazy bull" market rally, becoming the core focus of the U.S. stock market.

The "three AI chip giants" in the U.S. chip sector—NVIDIA (NVDA.US), Broadcom (AVGO.US), and Marvell Technology (MRVL.US)—are all included in Bank of America's 2025 "preferred chip stocks list." Other chip stocks on this list include semiconductor equipment giant Lam Research (LRCX.US), automotive chip leader ON Semiconductor (ON.US), and one of the leaders in EDA software, Cadence Design Systems (CDNS.US).

Among these, Broadcom is undoubtedly the most dazzling chip company in the recent U.S. stock market and even globally. After announcing strong growth results and an extremely optimistic outlook for the AI ASIC chip market last Friday morning Beijing time, its stock price surged over 20% in a single day in the U.S. stock market, surpassing the important milestone of a market capitalization of over $1 trillion. During Monday's trading session, it continued to soar over 10%, bringing its overall market capitalization close to the $1.2 trillion mark.

Among the "three AI chip giants," NVIDIA focuses on AI GPUs, while the latter two focus on the AI ASIC chip market. Customized AI ASICs can provide hardware acceleration for specific tasks, performing particularly well in large-scale AI training and inference tasks, offering higher efficiency and cost-effectiveness compared to general-purpose NVIDIA GPUs. These two types of AI chips will coexist in the long term, providing optimal solutions for different AI computing power demand scenarios.

With strong demand for Broadcom's Ethernet switch chips from major global data centers and its absolute technological leadership in inter-chip communication and high-speed data transmission between chips, Broadcom has become the most important player in the customized AI chip field in recent years. For example, in Google's self-developed server AI chip—TPU AI acceleration chip, Broadcom is a core participant, collaborating with the Google team in the development of the TPU AI acceleration chip and the AI training/inference acceleration library. In addition to chip design, Broadcom also provides Google with critical inter-chip communication intellectual property and is responsible for manufacturing, testing, and packaging new chips, thus ensuring the expansion of Google's new AI data centersWith its leading position in the AI ASIC market, Broadcom may soon break NVIDIA's "monopoly on AI chips." Mizuho analyst Jordan Klein pointed out that Wall Street is paying attention to the demand for ASICs from large cloud computing companies like Google, which may be one of the reasons for NVIDIA's unexpected stock drop on Friday. "In my view, customized AI chips will capture market share from NVIDIA's AI GPUs every year, although NVIDIA GPUs still dominate in AI training purposes."

The semiconductor boom cycle is far from over, and the upward potential for soaring chip stocks remains vast

"After a significant rise, the upward potential for chip stocks remains very broad, and we believe that two different upward trend curves will emerge in 2025." A team led by Bank of America analyst Vivek Arya wrote in this chip stock research report. "In the first half of the year, AI investments driven by U.S. cloud computing super customers and the scale of NVIDIA's Blackwell architecture AI GPU deployments will sustain the upward momentum of these AI-related chip companies' stock prices. In the second half, if the global economy continues to recover, market focus may shift to inventory replenishment and a rebound in automotive production, which means that automotive/industrial chip manufacturers, which have long been less crowded and significantly underperformed the U.S. stock market, are expected to regain investor favor."

The Bank of America analysis team led by Arya also stated that overall, the semiconductor market's total sales are expected to grow by about 15% in 2025, building on the strong growth in 2024, reaching $725 billion. "This is still a very strong growth pace, although it is a decline compared to this year's forecast growth rate of 20%."

The analysis team added that NVIDIA, Broadcom, and Marvell Technology are expected to continue benefiting from market demand closely associated with data center AI chips, as demand for AI computing resources from hyperscale cloud customers and major global data center operators continues to surge. Meanwhile, semiconductor equipment giant Lam Research is expected to benefit from flash memory demand and the ongoing recovery of semiconductor equipment spending in the Chinese market.

Additionally, the Bank of America analysis team stated that automotive chip giant ON Semiconductor, which has long underperformed the U.S. stock market and the Philadelphia Semiconductor Index, is expected to benefit significantly from the recovery of "final" demand in the electric vehicle and overall automotive sector (potentially occurring in the second half of next year). Meanwhile, Cadence Design Systems has long been a leader in the field of chip design automation and is expected to benefit in the long term from technology giants like NVIDIA, AMD, and Apple, as well as cloud computing giants like Amazon and Microsoft, accelerating the development of high-performance AI chips. Their demand for EDA software that can design more complex AI chips and accelerate chip design with new AI technologies is expected to continue to expand. EDA software tools are indispensable for chip giants like Apple, NVIDIA, and AMD in designing all types of chips, while photolithography machines are one of the core tools that convert chip design blueprints into actual productsThe Bank of America analysis team led by Alia pointed out in the report: "The demand boom cycle in the semiconductor market typically lasts about 2.5 years (followed by a decline cycle of up to 1 year), and we are currently only in the mid-stage of this semiconductor upcycle that began in [Q4 2023]." "We expect the sales of the memory chip market to grow again by 20% in 2025 on the strong foundation of 2024 (vs. 79% year-on-year growth in 2024), while the core semiconductor market (excluding the memory sector) is expected to grow by 13%, mainly due to strong performance in data centers. However, other segments, such as consumer electronics, electric vehicles, and the entire automotive sector, as well as industrial chip products, although showing signs of recovery, may experience slight declines, but the decline will be significantly narrowed compared to 2024."

The extremely optimistic outlook for the semiconductor market in this Bank of America research report echoes the latest semiconductor market size forecast report from the World Semiconductor Trade Statistics (WSTS), which is optimistic about continued strong growth in chip demand in 2025. In the latest autumn forecast, WSTS significantly raised its predictions for the semiconductor market size in 2024 and 2025 compared to the spring forecast, expecting the global semiconductor market to grow by 19.0% year-on-year to $627 billion in 2024. WSTS expects the semiconductor market size in 2025 to grow from 2024, indicating that the global semiconductor market is expected to grow by about 11.2% on top of the already strong recovery trend in 2024, with the global market size expected to reach approximately $697 billion.

WSTS expects that the growth of the semiconductor market size in 2025 will be strongly driven by the memory chip category and the artificial intelligence logic chip category. It is anticipated that under the unprecedented wave of global AI deployment, the total sales growth rate of the memory chip category dominated by DRAM and NAND will exceed 13% in 2025, while the total sales growth rate of the logic chip category, including CPUs and GPUs, is expected to exceed 16%. At the same time, it is also expected that the growth rates of all other sub-chip markets, including discrete devices, optoelectronics, sensors, MCUs, and analog chips, will reach single-digit growth.

For chip stocks, some potential risks cannot be ignored

Although the overall outlook for the semiconductor market remains optimistic, the Bank of America analysis team stated in the research report that there are still many unknown factors in 2025, with the most significant negative risk factors concentrated on market demand growth related to artificial intelligence, demand in the Chinese market, broader macro recovery conditions, and how the story of the old chip giant Intel in the U.S. will unfoldThe Bank of America analysis team led by Alia added that, given the accelerated penetration of AI applications into corporate operations and the daily lives of individual consumers, this "rotation market" from semiconductors to AI-benefiting software stocks will continue into 2025. This trend may pose intermittent pressure on the rise of popular chip stocks, driving funds to take profits from chip stocks and shift towards software stocks. "From a positive perspective, we can see that the support policies for U.S. economic growth under the new Trump-led U.S. government will drive a resurgence in merger and acquisition activities (especially in the semiconductor and software markets)," the Bank of America analysis team wrote.

Nevertheless, the Bank of America analysis team led by Alia emphasized in the report that chip stocks benefiting from the global AI boom, especially the "three giants of AI chips," are expected to continue to achieve strong gains at least until the second half of 2025. In addition to these three popular chip stocks and the aforementioned "preferred chip stock list," the Bank of America analysis team stated that chip giants such as ARM (ARM.US), Micron (MU.US), Coherent (COHR.US), Credo Technology (CRDO.US), and Macom (MTSI) are also expected to significantly benefit from this unprecedented AI boom