BofA Dismisses Tech Stock Decline, Reaffirms Confidence in Sector’s Longevity
Amid significant fluctuations in semiconductor stocks, Bank of America (BofA) has expressed strong support for the long-term potential of the tech sector. Analysts at BofA refute prevailing fears driving the tech stock downturn, labeling them inconsistent and illogical.
BofA’s Insights on the Tech Sector’s Longevity
In a recent note, BofA analysts, including senior analyst Vivek Arya, emphasized that the current market sentiment appears to be driven by unrealistic expectations. They referenced a timeless quote from economist John Maynard Keynes, highlighting that irrational market behaviors can persist longer than investors can stay solvent. However, they argue that the recent movements in AI chip stocks lack logical consistency.
Market Reactions to Leadership Comments
The market’s volatility is partly attributed to remarks by Palantir’s CEO, Alex Karp, during a recent earnings call. He pointed out that advancements in AI are making certain software-as-a-service (SaaS) companies potentially obsolete. This awareness has triggered a pronounced selloff that erased approximately $300 billion in market capitalization for major companies like Microsoft, Salesforce, and ServiceNow.
Analysis of the Current Selloff
BofA’s Arya classified the ongoing selloff as indiscriminate, comparable to the overreactions witnessed during past market events. They noted that the current decline resembles reactions seen following the launch of China’s DeepSeek in January 2025, which also proved to be an exaggerated response.
Conflicting Market Scenarios
BofA’s research challenges two contradictory scenarios driving market perception:
- AI capital expenditures declining to a level where returns diminish and growth becomes unsustainable.
- Conversely, AI adoption being expansive enough to render traditional software workflows obsolete.
The firm argues that both scenarios cannot exist simultaneously. If AI is capable of significantly disrupting existing industries, the supporting infrastructure investment cannot simultaneously be failing.
Projected AI Growth Opportunities
Rather than forecasting a coming crash, BofA is optimistic about the tech sector’s future. They anticipate that AI-related capital expenditures will quadruple to reach $1.2 trillion by 2030. This growth will be fueled by escalating demands for advanced computational and networking capabilities.
Valuation Dynamics and Market Positioning
The current market environment presents an appealing entry point for investors. High-profile companies such as Nvidia, Broadcom, AMD, and Credo Technology are trading close to or below a price-to-earnings growth (PEG) ratio of 1. This valuation is significantly more attractive than the 1.5x-2x valuations seen in the S&P 500 and large-cap growth peers. BofA indicates that investor concerns about demand are misplaced, suggesting that supply constraints are a more pressing issue for tech firms.
Physical Limitations in Tech Development
Actual challenges to the AI expansion include limitations related to power, land, and data center infrastructure, as well as advanced memory components. These factors serve as natural constraints on overbuilding, alleviating fears of excessive supply in the market.
Overall, BofA maintains that the semiconductor industry is well-positioned to benefit from ongoing developments in AI, urging investors to reconsider their outlook regarding earnings and technology trends. The firm encourages a focus on long-term potential amid current volatility.
