By Angela Palumbo

Semiconductor stocks have taken a hit this year, but one BofA Securities analyst remains optimistic about the sector's future.

Risks, including the implementation of tariffs and restrictions on exports of the most advanced artificial-intelligence chips, have semis under pressure. The PHLX Semiconductor Index, or the SOX, has dropped 6% this year.

But BofA Securities analyst Vivek Arya wrote in a note on Monday that it is common for the SOX to be volatile, and the current drop doesn't necessarily point to a long-lasting trend.

Last week, the index dropped 7.2%. Since the beginning of 2021 through the end of last week, the SOX has faced 21 separate 5% or more weekly declines, according to Dow Jones Market Data, while the S&P 500 has had only three instances of 5% or more weekly drops in the same time frame. However, from Dec. 31, 2020, through Feb. 28, 2025, the SOX has appreciated 71% while the S&P 500 has gone up 59%.

AI chip darling Nvidia -- a member of the SOX -- has been falling after the release of its quarterly results, even though they were better than expected. Despite this and the broader selloff, Arya is confident upcoming earnings from Marvell Technology and Broadcom could turn things around for the space.

"We expect beat/raise results from AVGO, MRVL...to re-energize interest in AI semis, since capex by U.S. cloud customers and sovereign AI investments remains the only dependable bright demand spot in the global economy," Arya wrote in a note on Monday.

Marvell is scheduled to report earnings on March 5 and Broadcom on March 6.

Arya isn't alone in his optimism. J.P. Morgan's Harlan Sur wrote on Sunday that he believes the fundamental setup is solid for Marvell and Broadcom, with both companies benefiting from "strong hyperscale capex spending."

Hyperscalers are large cloud service providers such as Alphabet, Microsoft, and Amazon.com. All of these companies have said they plan on spending tens of billions of dollars on AI this year, including for data center buildouts and other AI initiatives. Some of that spending has to go to hardware, benefiting companies such as Marvell and Broadcom.

Marvell sells a portfolio of chips and hardware products for data centers and AI infrastructure and helps big tech companies design their own AI semis. Broadcom also helps design in-house processors for big tech.

Arya is also confident in the potential long-term positive impact AI chatbots could have on chips. Some of these chatbots include OpenAI's ChatGPT, Alphabet's Gemini, DeepSeek, and Meta AI.

"The rise of chatbots in our view is a major positive for AI semis as it can drive continued strong demand for training and inference chips, drive new business models and applications, and reassure investors of return on investment on AI," Arya wrote.

Write to Angela Palumbo at angela.palumbo@dowjones.com

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March 03, 2025 16:28 ET (21:28 GMT)

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