Bank of America: Chip stocks "summer pullback, autumn rebound," storage "valuation low, should expand"

The latest report from Bank of America Securities believes that the current adjustment in the semiconductor industry is a healthy reset rather than a structural shift, and provides a clear endorsement of the long-term investment value of memory chips.

According to the Chase Trading Desk, Bank of America analyst Vivek Arya noted in a report on July 6 that after the Philadelphia Semiconductor Index surged 88% in the second quarter, it has corrected 11% in the third quarter, closely aligning with historically weakest seasonal patterns. **He characterized this correction as a "summer reset" and anticipates a rebound in the fall. In the memory sector, the report reiterates a buy rating on Micron Technology with a target price of $1,550, calling it the top pick.

These judgments have direct reference significance for current market sentiment. Against the backdrop of the rapid rise of Chinese open-source models and market doubts about the sustainability of AI capital expenditure, the report provides a systematic defense of the demand logic for the semiconductor industry and makes clear predictions about the valuation recovery path for memory chips.

Seasonal correction does not change the trend, AI cycle foundation is solid

Bank of America believes that the 11% correction in the SOX index in the third quarter aligns with historical seasonal patterns and should not be interpreted as a structural deterioration in AI demand. The report points out that consolidation periods are often followed by a re-accumulation of momentum, driven by investors' renewed confidence in the next round of earnings growth and capital expenditure cycles.

Global cloud computing and AI infrastructure capital expenditure is expected to approach $1.5 trillion by 2027, growing another 40% to 50% from current levels, supported by factors including continued expansion of computing demand, accelerated deployment of AI agents, and structural constraints on supply.

The report emphasizes that the strategic focus of hyperscale cloud providers remains on maximizing utilization and business growth, rather than optimizing depreciation and amortization, which implies a strong rigidity in capital expenditure. As visibility into cloud capital expenditure for 2027 gradually improves in the second half of 2026, segments such as memory (MU), computing (AMD, INTC), semiconductor equipment (AMAT, LRCX, KLAC, TER), optics (MTSI), and networking (CRDO, MRVL) are expected to regain market leadership.

Chinese open-source models impact software profits, but are positive for semiconductor demand

The report positively addresses market concerns about Chinese AI models. Chinese open-weight models such as GLM, Kimi, DeepSeek, and Qwen have rapidly narrowed the gap with top US frontier labs, competing at significantly lower inference costs. The latest third-party benchmark rankings as of July 4 show that US frontier models from Anthropic and OpenAI still maintain a lead, but Chinese models occupy 8 of the top 16 positions, with the highest-ranked being GLM 5.2 released by Zhipu (Z.ai)—an open-weight model with 750 billion parameters and a million-token context window.

The rise of Chinese models puts real pressure on AI software profit margins, but is actually a positive for semiconductor demand. Low-cost intelligence will expand use cases, broaden deployment scope, and ultimately drive up overall demand for computing, memory, networking, and power infrastructure. The report explicitly states that the greater risk lies in model economics, not semiconductor demand itself.

Additionally, the report notes that Nvidia is actively participating in building the open-source community, which not only helps improve its hardware ecosystem but also helps bring small and medium-sized AI adopters into its ecosystem—clients who often lack the resources to directly engage with frontier labs.

Memory valuation is severely undervalued, multiple factors support multiple expansion

The judgment on memory chips is the most distinctive part of this report. The report points out that memory currently accounts for about 35% to 40% of cloud AI capital expenditure, 2 to 3 times historical levels, but memory stocks are trading at only around 10x forward P/E, clearly undervalued.

The market underestimates the industry's transition to long-term agreements and more predictable pricing models. Investor concerns about pricing sustainability, new supply, and customer concentration have kept valuations depressed for a long time, but this judgment is biased. As memory evolves from a cyclical commodity to a strategic AI infrastructure, valuation multiples should be repaired.

Based on this logic, Bank of America reiterates a buy rating on Micron Technology with a target price of $1,550, listing it as the top pick in the semiconductor sector.

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