The artificial intelligence boom isn't cooling off — it's getting bigger, Bank of America analyst Vivek Arya contends.
While AI skeptics have pointed to eye-popping valuations as a reason to run, Arya said the industry is only at the "midpoint" of a decade-long transformation, and it's being led by Nvidia (NVDA) and Broadcom (AVGO).
In a report titled "2026 Year Ahead: choppy, still cheerful," Arya forecast a 30% year-over-year surge in global semiconductor sales that will finally push the sector past a historic $1 trillion annual sales milestone in 2026.
Arya noted a strong belief in companies with "moats 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 that investing in semis is very simple," Arya told reporters on a Dec. 19 call. "You don't need any sell-side analyst to do that. Just take all your companies, sort them by gross margins, and buy the top five, and you're not going to be that wrong."
BofA estimates that the total addressable market for AI data center systems will reach over $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 because AI data centers are expensive. A typical 1 gigawatt facility requires upwards of $60 billion in capital expenditures, with roughly half of that going directly to hardware, per Bank of America.
That raises the question: Will the return on investment ever materialize?
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 Nvidia shares up over 40% year to date, Arya warned against comparing the AI leader to traditional chipmakers. While the average chip is priced at $2.40, an Nvidia graphics processing unit (GPU) sells for roughly $30,000.
And although some fear Nvidia's market cap has hit a ceiling, BofA pointed to free cash flow — projected to hit half a trillion dollars over the next three years — and a valuation that is "still incredibly cheap" when adjusted for growth.
Trading at roughly 0.6x its price-to-earnings growth (PEG) ratio, Nvidia looks like a bargain compared to the broader S&P 500 (^GSPC), which trades close to 2x.
"Valuation is in the eye of the beholder," Arya told reporters.
If Nvidia is the AI brain, Broadcom is the nervous system.
With shares up more than 50% year to date, Broadcom has pivoted from being a component supplier to a pillar of AI infrastructure with a $1.6 trillion market cap. The shift is driven by its custom application-specific integrated circuits (ASICs) for hyperscalers such as Google (GOOGL, GOOG) and Meta (META). As these giants work to reduce their reliance on Nvidia, they are turning to Broadcom.
Others on Wall Street share the sentiment. In a research note, Goldman Sachs analyst James Schneider viewed Broadcom as a critical arms dealer in the AI boom. With a price target of $450, Schneider highlighted the company's unique ability to dominate custom silicon, citing further "upside" from expanding relationships with AI players like Anthropic (ANTH.PVT) and OpenAI (OPAI.PVT).
Despite the optimism, Arya admitted that the road to $1 trillion will be "choppy" and that no stock is "riskless." However, his top six for 2026 were chosen specifically for their dominant market shares, which typically hover between 70% and 75%.
"Look at the leaders in any part of technology, and you will usually see the leader has that kind of market share," Arya concluded. "It's actually the norm."
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