Chip stocks are still in a bullish market narrative of a "main uptrend"! In 2026, the main focus will be on AI chips, semiconductor equipment, and optical interconnects.

The latest research report released by Wall Street financial giant Morgan Stanley shows that, driven by the unprecedented AI infrastructure boom and strong destocking pace of traditional analog chips/MCUs, the "long-term bull market logic" of chip stocks remains intact. Next year, chip stocks are still likely to be one of the most outstanding sectors in the US stock market, with NVIDIA Corporation (NVDA.US), Broadcom Inc. (AVGO.US), and Astera Labs (ALAB.US) listed as the preferred semiconductor stocks for the institution in 2026. At almost the same time, another Wall Street financial giant Bank of America Corp (Bank of America Research) senior analyst team stated that the chip sector, which is leading the US stock market into this super bull market, is likely to continue its bullish momentum next year. They also emphasized that NVIDIA Corporation and Broadcom Inc. are the most worthy chip stocks to hold in 2026. Bank of America Corp stated in its research report that the global AI arms race is still in the "early to mid-stage," and despite the recent sharp declines in popular chip stocks such as NVIDIA Corporation and Broadcom Inc., investors should continue to focus on industry leaders, such as NVIDIA Corporation, Broadcom Inc., KLA Corporation (KLAC.US), Lam Research Corporation (LRCX.US), and Teradyne, Inc. (TER.US). The latest research reports from these two top Wall Street institutions show that the core DRIVE of the "super bull market in US stocks" since 2023 - chip stocks, are gaining global favor after being sold off sharply recently. In 2026, they are likely to continue attracting funds to pour in, making it very possible to once again start a bull run like a "crazy bull" and becoming the core focus of the US stock market. According to the latest 2026 semiconductor industry investment outlook released by these two top Wall Street giants, there are three major investment themes in the chip sector that are highly favored by both parties: leaders in AI chips, expansion of semiconductor equipment expenses, and top players/leaders in the data center optical interconnection industry chain. The main investment themes for chips given by Morgan Stanley and Bank of America, are closely related to the surge in demand for AI GPUs/AI ASIC clusters under the AI infrastructure frenzy since 2023. NVIDIA Corporation and Broadcom Inc. remain dominant in AI chip demand. At the same time, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, Samsung, Micron, and SK Hynix continue to invest heavily in purchasing advanced semiconductor equipment to expand capacity. Optical interconnection is not a "side character" in the AI narrative, but remains a clear "performance realization theme" with tight supply and demand balance even in 2026-2027. The solutions based on data center optical interconnection/optical modules are crucial for both NVIDIA Corporation's "InfiniBand + Spectrum-X/Ethernet" high-performance networking infrastructure + GPU clusters and Alphabet Inc. Class C's "OCS (Optical Circuit Switching) + TPU clusters". The semiconductor boom cycle is far from over, and the potential upside for chip stocks is still vast. Morgan Stanley's analysts wrote in a report to clients, "For three consecutive years, the biggest point of contention in the market has been AI semiconductors, with the index weight in the chip field dominated by AI chip companies. So far, the global appetite for AI compute has been insatiable, which is the most important variable." "We are skeptical of some five-year views - these views make the strong performance in 2025 look as simple as rounding error - in these views, industry participants plan to spend multiple times their private market valuation on data center compute infrastructure. The market's skeptical view may not be correct, as the trends in market valuation and logic are constantly evolving, but even if the long-term outlook is correct, we also expect that there will be phase digestion periods along the way, and do not rule out the impact of this positive cycle on market pricing logic." "We believe 2026 is the mid-point of the 8 to 10-year journey to upgrade traditional IT infrastructure to cope with accelerated and AI workloads." "A greater scrutiny of AI returns and cash flows for mega-sized cloud service providers may cause stock price volatility, but this will be offset by updates/faster LLW developers and AI factories serving enterprises and sovereign clients. We predict that semiconductor sales in 2026 will approach the first $1 trillion mark, achieving about 30% growth, while wafer fab equipment sales will see nearly double-digit year-on-year growth." Analysts at Bank of America Corp stated in their research report. With Morgan Stanley and Bank of America, such top-tier sell-side institutions listing chip sectors (especially the AI chip industry chain/customized ASIC/semiconductor equipment chain) as core holdings for 2026 at the same time, it essentially reflects that the mainstream market framework is still - AI capital expenditures and artificial intelligence basic compute demand are likely to continue providing the foundation for an upward narrative in 2026. Compared to the slightly cautious stance of Morgan Stanley, Bank of America's statement is more direct: still considering the AI race as being in the "early/mid-stages," and expecting the sub-sector of AI semiconductors in the chip sector to likely maintain a 50%+ year-on-year growth driver in 2026 (due to high data center utilization, tight supply, enterprise adoption, LLW/cloud service providers/sovereign client competition, etc.). The latest semiconductor industry outlook data released by the World Semiconductor Trade Statistics Organization (WSTS) recently shows that the global chip demand expansion trend is expected to continue its strong performance in 2026, and MCUs and analog chips, which have been experiencing continued soft demand since the end of 2022, are also expected to enter a strong recovery curve. WSTS expects the global semiconductor market to grow by 22.5% in 2025, with a total value reaching $772.2 billion, higher than the outlook given in the spring by WSTS; the total value of the semiconductor market in 2026 is expected to expand significantly to $975.5 billion on the basis of strong growth in 2025, approaching the market size target of $1 trillion set by SEMI for 2030, indicating a potential year-on-year increase of 26%. WSTS stated that this two-year consecutive strong growth trend is mainly due to the strong momentum in the logic chip sector dominated by AI GPUs, as well as the strong momentum in the storage sector dominated by HBM storage systems, DDR5 RDIMM, and enterprise data center NAND. These two sectors are expected to achieve incredibly strong double-digit growth, driven by the continuous strong expansion demand in areas such as artificial intelligence inference systems and cloud computing infrastructure. According to Morgan Stanley, Citigroup, Loop Capital, and Wedbush, the global AI infrastructure investment wave centered on AI chip compute hardware is far from over. It is just the beginning, and under the unprecedented "AI inference end compute demand storm" pushing forward, this round of AI infrastructure investment wave is expected to reach a scale of $3 trillion to $4 trillion by 2030. The main chip stock themes favored by Morgan Stanley and Bank of America: AI chips, semiconductor equipment, and optical interconnection. NVIDIA Corporation and Broadcom Inc. are Morgan Stanley's two preferred stock targets in the AI chip sub-segment semiconductor market and the overall chip stock market. Analysts from Morgan Stanley explained, "At the time of writing this article, market enthusiasm for AI ASICs is continuing to rise, with the market betting on strong growth, but as various ecological bottlenecks emerge, we still believe that NVIDIA Corporation's AI GPU compute clusters will remain the highest ROI preferred solution for the cloud, especially as NVIDIA Corporation's Vera-Rubin architecture begins to ramp up in the second half of 2026." "Despite limited leverage, we still believe the market undervalues NVIDIA Corporation's near-monopoly position." The institution gives a "face the same" (Equal-Weight) cautious bullish rating to AMD (AMD.US) and Marvell Technology, Inc. (Marvell, MRVL), stating that both have "significant upside potential," but there are also uncertainties. Given their long-term pessimistic view on Intel Corporation's foundry business, Morgan Stanley is more cautious about Intel Corporation (INTC.US). Astera Labs is the small-cap chip stock target that the institution is most optimistic about in the data center optical interconnection field, especially highlighting the company's advancement in data center internal optical interconnection/silicon photonics technology through the acquisition of aiXscale to promote rack-level/scale-up optical interconnection ecosystem solutions. In the storage and semiconductor equipment sectors, Morgan Stanley stated that with the production capacity of AI chips and high-end storage chips still unable to keep up with market demand, it is likely to drive stable supply tensions in storage and logic wafer supply in the long term. Therefore, Micron (MU) is the institution's preferred target in the storage chip market, while enterprise SSD leader SanDisk (SNDK.US) is given an "Overweight" rating. In the semiconductor equipment and chip manufacturing sectors, Applied Materials (AMAT.US) and Taiwan Semiconductor Manufacturing Co., Ltd. are the two chip stocks that Morgan Stanley is most bullish on. Both Morgan Stanley and Bank of America indicated that as global AI infrastructure construction processes led by tech giants such as Microsoft Corporation, Alphabet Inc. Class C, and Meta intensify, it will significantly accelerate the large-scale production expansion of 3nm and below advanced process chips and advanced packaging capacity. The long-term bull market logic in the semiconductor equipment sector remains very robust. The introduction of various high-end manufacturing equipment by semiconductor equipment manufacturers is crucial for chip manufacturing giants such as Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, Samsung, and Micron in the production capacity of AI training/inference-related chips. Any news catalyzing advanced process AI chip capacity is positive and favorable for semiconductor equipment. The institution stated that the more complex architecture updates and iterations with much stronger CPU/GPU packaging heterogeneity (based on NVLink high-speed interconnects, as well as CoWoS/EMIB/Foveros and other chiplet advanced packaging) will significantly boost the demand for EUV/High-NA lithography machines, advanced packaging equipment, high-end etching equipment, customized deposition film equipment, detection measurement structural needs, especially benefiting Teradyne, Inc., Lam Research, Applied Materials, and KLA. Morgan Stanley stated that the narrative foundation and pricing logic of the analog chip market in 2025 are generally similar - showing improvement but at a slower pace. Therefore, the institution favors NXP Semiconductors NV (NXPI.US), considering it as the "best combination of growth and value model in chip stocks"; while Analog Devices, Inc. (ADI.US) has a higher valuation but has "stronger growth potential in the analog chip sector." In addition to NVIDIA Corporation, Broadcom Inc., and Lam Research Corporation, Bank of America Corp favors KLA (KLAC.US), Analog Devices, Inc. (ADI.US), and Cadence Design Systems (CDNS.US) among large-cap chip stocks; and Credo Technology (CRDO.US), MKS (MKSI.US), Macom Technology Solutions (MTSI.US), Teradyne, Inc. (TER.US), and Advanced Energy Industries (AEIS.US) among mid-cap chip stocks. In the data center optical interconnection field, Bank of America stated that Lumentum (LITE.US) and Coherent (COHR.US) are considered absolute leaders in the optical interconnection field. In Alphabet Inc. Class C's Jupiter/AI data center network system, a large-scale deployment of OCS (optical circuit switch) clusters is being embedded in the architecture to support TPU AI systems and large-scale training/inference systems. Lumentum's R300/R64 and other OCS products are specifically aimed at "large-scale cloud computing + AI/ML data center networks": establishing optical connections between endpoints directly with MEMS optics, bypassing intermediate electrical exchanges and OEO conversions, focusing on high port counts, low latency, and low power consumption. Lumentum is also a key supplier of high-speed optical modules and optical interconnect chips, positioning these products as core components for "providing scalable interconnect bandwidth for AI and large-scale cloud data centers." Lumentum is one of the biggest winners of the Alphabet Inc. Class C AI explosion, as it is providing indispensable optical interconnects for the "high-performance network base system" deeply integrated with the TPU AI compute clusters of Alphabet Inc. Class C - that is, OCS (optical circuit switch) + high-speed optical components. With every increase in TPU count by an order of magnitude, its shipments multiply accordingly. Undoubtedly, the entire optical communications industry chain, including optical modules, is benefiting because the large-scale AI model training/inference based on massive compute power essentially weaves tens of thousands of compute chip modules into a machine using fiber optics, where the growth rate of network bandwidth and port counts is now comparable to the AI chips themselves, which is why the entire optical communication industry chain, including optical modules, is currently experiencing a comprehensive outbreak in the A-share market.