The Philadelphia Semiconductor Index has fallen about 18% below its peak in 2026, underperforming the S&P 500 significantly. Bank of America analysts, led by Didier Scemama, see this move as a classic trade-tension correction rather than a full-blown cyclical collapse like those in 2011, 2022, or 2024-2025.
BofA highlights that the selloff stems from geopolitical pressures, not deteriorating fundamentals. This nuance seems overlooked by much of the market, which has priced the sector at roughly a 3 times discount to 2028 consensus valuations. Semiconductor capital equipment stocks are even cheaper, trading at a 6 to 7 times discount, presenting what the bank describes as the most attractive entry point in years.
Top Picks and Industry Forces
ASML remains BofA’s top large-cap pick in Europe, buoyed by rising average selling prices and improving margins. The bank forecasts ASML’s 2027 and 2028 earnings to be 6-7% higher than consensus estimates.
ASM International is expected to surpass second-quarter earnings by around 11%, backed by increased capital spending from heavyweights like TSMC and Intel, as well as a rebound in analog and power semiconductors.
STMicroelectronics rounds out the trio of Buy ratings, with BofA counting on earnings power exceeding $4.50 per share in 2028, supported by a strong order backlog and efficiency gains.
Looking ahead, BofA projects wafer fabrication equipment spending will surpass $250 billion by 2028, fueled by consecutive years of roughly 30% annual growth. A key factor is a rumored five-year, $200 billion foundry deal between Samsung and Broadcom, along with recent capex hikes from TSMC and Intel.
TSMC recently reported $40.2 billion revenue for Q2 2026, beating expectations with a 67.7% gross margin, and raised its full-year revenue growth forecast above 40%, driven largely by AI chip demand.
BofA also dismissed concerns about a collapse in memory prices, citing long-term contracts with hyperscalers, automotive firms, and consumer OEMs that provide stable demand.
