AI chips are still riding earnings, not fumes

Not your usual bubble talk

The AI-chip party is getting loud, but Bank of America basically walked in and said, “Relax, this still looks like business.” The firm argued the semiconductor boom is being powered by earnings growth, not speculative excess — a pretty important distinction when a sector has already ripped hard enough to make your eyes water.

The iShares Semiconductor ETF, aka SOXX, has surged roughly 80% year-to-date, and yet BofA says forward valuations still aren’t screaming insanity. Its read: the SOX forward P/E is around 25.6x, which is elevated, sure, but not the kind of nosebleed multiple that usually makes Wall Street start whispering about tulips.

Nvidia and Micron steal the spotlight

Nvidia is the headline act here. BofA says the stock now trades at 17.5x 2027 earnings, well below its five-year average of 33.6x, even after becoming the poster child for the AI boom. The kicker? Analysts expect EPS to compound at 62% annually from 2025 to 2027. That’s the kind of combo that makes valuation nerds sit up straighter.

Micron, meanwhile, is making the kind of case that sounds almost illegal in a market this hot: just 6.9x 2027 earnings, with projected EPS growth of 170% and sales growth of 100% between 2025 and 2027. If the AI buildout keeps devouring high-bandwidth memory like a teenager on an all-you-can-eat buffet, Micron could be one of the biggest sneaky winners.

Why you should care

This matters because when a sector has already run this hard, investors usually start asking the same annoying question: “Okay, but what if the hype is over?” BofA’s answer is basically: not so fast. If AI capex keeps flowing and earnings keep climbing, the rally may have more room than the doomers want to admit.

Big picture: the AI trade may not be running on vapor after all — it may be running on very real profits, and that’s a much sturdier fuel tank.