Amid recent turbulence in the semiconductor sector, Bank of America (BofA) analysts are forecasting a potential rebound for semiconductor stocks.
The sector has been significantly impacted by the fluctuating effects of investments in AI infrastructure, leading to heightened volatility and investor uncertainty.
In recent weeks, semiconductor stocks have faced considerable declines as market participants struggle to assess the long-term returns from AI investments.
With AI still in its developmental phase, differing opinions on its growth and potential returns have contributed to the sector’s instability.
This volatility, however, presents opportunities for investors to acquire shares at reduced prices.
Volatility to persist through October
BofA analysts, including Vivek Arya, anticipate that semiconductor sector volatility will likely continue for the next few months.
Historically, September has been a challenging month for semiconductor stocks, and the sector is approaching this period with significant declines already recorded.
Arya notes that “volatility could persist through NVDA earnings and then into September, historically the worst month for SOX, down 70% of the time.”
Political and geopolitical uncertainties have further exacerbated market fluctuations.
Although election uncertainties have diminished with President Biden’s withdrawal from the race, geopolitical tensions, particularly those involving Iran, remain high.
Arya points out that despite these challenges, the semiconductor sector is still early in its recovery cycle.
Previous upcycles lasted around ten quarters, while the current uptrend has been ongoing for only four quarters.
The Philadelphia Semiconductor Index has seen a 28% return during the current uptrend.
Given that previous upcycles have delivered average returns of 67%, there is a strong potential that the current bull market is not yet halfway through.
This perspective suggests that the recent dip in semiconductor stocks could represent a buying opportunity.
Nvidia remains the top investment choice
Despite a 122% increase in its stock price this year, Nvidia continues to be a leading choice among semiconductor investments.
Recent stock volatility has been partly attributed to delays in Nvidia’s Blackwell GPUs, a highly anticipated product in the industry.
However, Nvidia’s dominant market position is expected to mitigate any long-term impact from these delays.
Analysts remain optimistic about Nvidia’s prospects.
UBS analyst Timothy Arcuri maintains a buy rating on the stock with a target price of $150.
He also downplays the significance of the GPU delay, highlighting that the delay will not affect Nvidia’s market position substantially.
Arcuri notes that lead customers are expected to have their first Blackwell instances available by April 2025.
Additionally, the growing demand from AI labs and enterprises further supports a bullish outlook for Nvidia.
Arcuri also revises earlier predictions, suggesting that Nvidia’s earnings are likely to strengthen into 2026, rather than peaking in 2025 as previously expected.
This positive sentiment towards Nvidia could help stabilize the semiconductor sector and set the stage for a potential market recovery as it heads into October.
While the semiconductor sector faces ongoing volatility, the forecasted rebound and strong performance of key players like Nvidia offer hope for a market turnaround in the coming months.
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