Bank of America views the recent sharp decline in semiconductor stocks as a buying opportunity, forecasting a massive surge in industry spending over the next two years. Analyst Vivek Arya told clients on Wednesday that the pullback in Applied Materials, Lam Research, and KLA represents an entry point rather than a warning, driven by an impending wave of capital expenditure. The bank expects wafer fab equipment spending to climb from roughly $144 billion in 2026 to about $250 billion by 2028, representing growth of close to 30% a year, with rising equipment prices potentially adding another 10%.

The three stocks, which all peaked on June 30, have fallen significantly in the three weeks since. Applied Materials declined about 23%, Lam Research fell approximately 27%, and KLA dropped around 28%. The selloff was triggered by investor fears that memory prices were peaking and that cheaper Chinese AI models would reduce hardware spending. However, Bank of America describes the situation as an "enhanced buying opportunity," citing more than two years of forward visibility and demand drivers such as high-bandwidth memory and gate-all-around transistors.

Applied Materials: The Broadest Bet On The Cycle

Applied Materials is the largest and most diversified name in the group, offering exposure to nearly every segment of the upcycle. Arya highlighted its leading share of about 20% in DRAM equipment, which is becoming a bottleneck as AI demand strains supply. Despite this, the stock trades at roughly 28 times next year's earnings, near its widest discount to peers in five years. Bank of America rates it Buy with a $720 price target, about 29% above the current $556.24. The consensus rating is a Buy with an average target of $631.56.

Lam Research: The Etch And Deposition Leader

Lam Research is positioned as a through-cycle share gainer in etch and deposition, critical steps in chip manufacturing. Arya noted the company is best positioned for a new wave of NAND flash-memory capacity. Bank of America maintains a Buy rating with a $480 target, approximately 51% above the current $317.06. The Street's average target is $329.19, though recent calls reach a Street-high of $500.

KLA: The Compounder Bank Of America Says Is Too Cautious

KLA leads in process control, providing inspection and measurement tools essential for defect detection. Arya characterized the company as a "compounder at cusp of acceleration," arguing that its high-teens full-year sales guidance appears conservative. Bank of America rates it Buy with a $317 target, about 46% above the current $217.16. The consensus is a Buy, with recent targets ranging from $240 at UBS to a Street-high of $325 at Cantor Fitzgerald.

Bank of America upgraded EricaAssist with generative AI capabilities to deliver contextual guidance in under three seconds, helping employees resolve client needs faster. The tool reduces average call times by nearly one minute per interaction, improving efficiency and client experience. More than 18,000 customer service representatives currently use EricaAssist to support client conversations.

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Customer service representatives use the generative AI capabilities within EricaAssist to summarize why a client is calling, pull together relevant information, and recommend next steps based on the employee's role and the client's relationship with the bank. The technology operates without interrupting the flow of the conversation.

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Technology Investment

Bank of America spends $14 billion annually on technology, with more than $4 billion allocated to new initiatives, including AI. These ongoing investments, combined with a high-tech, high-touch approach, continue to enhance client experiences across all channels and drive operational efficiencies.

Future Expansion

Later this year, Bank of America plans to expand EricaAssist to support additional servicing scenarios and business lines. The responsible AI strategy ensures human oversight, transparency, and accountability for all outcomes.