The artificial intelligence boom isn’t over — it’s getting bigger, argues Bank of America analyst Vivek Arya.
While AI skeptics point to eye-popping valuations as the reason for the move, Arya said the industry is only at the “midpoint” of a decade-long transformation, and that Nvidia ( NVDA ) and Broadcom ( AVGO ) are leading the way.
In a report titled “Years Ahead to 2026: Chappy, Still Cheery,” Arya predicted a 30% year-over-year increase in global semiconductor sales that would eventually propel the sector past the historic $1 trillion annual sales milestone in 2026.
Arya noted strong confidence in companies with “gaps that are quantified by their margin structure.” In addition to Nvidia and Broadcom, he highlighted four other large-cap semiconductor companies — Lam Research ( LRCX ), KLA ( KLAC ), Analog Devices ( ADI ), and Cadence Design Systems ( CDNS ) — as his top picks for 2026.
“I often say investing in the semifinals is very simple,” Arya told reporters on December 19. “You don’t need a sell-side analyst to do that. Just take all your companies, sort them by gross margin, and buy the top five, and you can’t go wrong.”
BofA estimates that the total addressable market for AI data center systems will reach more than $1.2 trillion by 2030, representing a compound annual growth rate of 38%. AI accelerators alone represent a $900 billion opportunity.
Despite these staggering figures, the market remains cautious as AI data centers are expensive. A typical 1 gigawatt facility requires upwards of $60 billion in capital expenditures, about half of which goes directly to hardware, according to Bank of America.
This begs the question: Will the return on investment ever materialize?
Read more: How to protect your portfolio from the AI bubble
Arya remained optimistic, arguing that current spending is both “offensive and defensive.” In other words, Big Tech has no choice but to invest to protect its existing empires.
Nvidia — the world’s largest company by market cap — is currently operating in a “different galaxy,” Arya said.
With over 40% of Nvidia’s share year-to-date, Arya cautioned against comparing the AI leader to traditional chipmakers. While the average chip costs $2.40, an Nvidia graphics processing unit (GPU) sells for around $30,000.
And while some fear Nvidia’s market cap has gone through a roof, BofA pointed to free cash flow — projected to reach half a trillion dollars over the next three years — and a “still incredibly cheap” valuation when adjusted for growth.
