BofA says the chip reshuffle makes Nvidia a ‘compelling’ value play

The semiconductor sector is bracing for a game of musical chairs, and the best seat might be the most obvious, says Bank of America’s Vivek Arya.

“Our preferred compute names NVDA, AVGO, AMD and CRDO are projected to grow sales on average at a 42%,” Arya wrote in a recent note to clients.

Despite their massive reach, Arya argues that these cloud chip giants are trading at a “notably compelling valuation backdrop” of just 0.5x their price-to-earnings growth (PEG) ratio. For an industry often accused of being in a valuation bubble, the math suggests that the biggest names in the AI revolution are actually trading at a steep discount relative to their growth.

The call comes as the semiconductor industry enters a critical earnings week, with heavyweights like ASML (ASML), Lam Research (LRCX), and Texas Instruments (TXN) set to report. All the while, investors are keeping a close eye on the macro environment as a Federal Reserve rate decision looms.

While the Philadelphia Semiconductor Index (SOX) is already up roughly 11% year to date — handily beating the S&P 500 (^GSPC) — BofA warns that the easy money in equipment makers may have been made. The bank is now signaling a “reshuffling” away from expensive tool-makers and back into compute engines such as Nvidia (NVDA).