Bank of America says artificial intelligence will still be a hot trade in 2026. The bank argued in a note on Tuesday that AI trade is still in the early to mid-stage. Analysts led by Vivek Arya expect chipmakers to continue delivering attractive, if choppy, earnings, and said the Street consensus continues to undervalue the “material” missions of these stocks. “Although AI investment is in mid-life gloom, we expect AI Semicon to continue to see strong 50%+ year-over-year growth this year, driven by strong data center utilization, supply shortages, enterprise adoption, and competition among LLM builders, hyperscale customers, and sovereign customers,” Arya wrote, referring to large language models. “Higher scrutiny of AI revenues and hyperscalers’ cash flows could keep stock prices volatile, but this could be offset by newer/faster LLM builders and AI fabs serving enterprise and government customers.” Arya expects semiconductor sales to grow another 30% in 2026, reaching nearly $1 trillion for the first time. In the same note, the analyst shared the top six large-cap stocks within the group, with a focus on quality and sector leadership, as shown below. AI leader NVIDIA, which has risen 32% this year, will continue to be one of the company’s top six stocks in 2026. Aria’s $275 price target suggests Jensen Huang’s company has the potential for an additional 56% upside from current levels. Arya wrote that NVIDIA currently trades at a “compelling” valuation, with only half that growth rate and a solid pipeline and plenty of potential catalysts. Arya’s price target is “justified by NVDA’s leading share in the rapidly growing AI computing/networking market, offset by concerns about the volatility of global AI projects, the cyclical gaming market, and access to power,” he wrote. Broadcom is also rated a buy and has the second-largest upside potential among Arya’s top six stocks. He expects the stock to rise 47% from Monday’s closing price, given the company’s “double-digit EPS growth and best-in-class profitability, (free cash flow) generation and earnings.” The third stock on Bank of America’s recommended list is Lam Research. Arya’s $195 price target implies 19% upside potential. “Our (target price) criteria is based on the ongoing memory (wafer fabrication equipment) cycle, extended mid-teens EPS “Near the high end of the historical 9x to 40x trading range, justified by CAGR, etch/deposition product leadership, rising etch/deposition intensity, share growth, increased foundry/logic exposure to memory, improved NAND recovery prospects, and solid FCF generation, offset by near-term concerns about cost inflation and tariffs,” Arya wrote.
