"AI demand visibility" extends to 2028! Bank of America Merrill Lynch: Storage will not be "oversupplied" before then, semiconductor equipment will see significant growth.

Chip stocks just experienced a "quake," yet Bank of America Merrill Lynch released an extremely bullish report on semiconductors at this moment.

On June 23, as global chip stocks suffered a major setback — the Philadelphia Semiconductor Index plunged 7.9% in one day, Micron Technology fell 13%, and Korea's KOSPI index triggered a circuit breaker — analysts Vivek Arya and others from Bank of America Merrill Lynch published a report titled "US Semiconductor Industry Status: Upgrading Forecast, AI Extending Visibility to 2028."

The report states: AI-driven demand for chips is now visible until 2028, memory will not face oversupply before then, and semiconductor equipment spending will see a big year in 2028.

The Semiconductor Industry Will Add Another $1 Trillion in Revenue Within Five Years

The chip industry took about 50 years to reach its first $1 trillion annual sales. But according to the report's framework, AI is expected to help the industry add another $1 trillion within the next five years.

In numbers, the total global semiconductor market forecast has been revised from the previous $2.3 trillion to $2.7 trillion (by 2030), with a 28% compound annual growth rate from 2025-2030.

2026 is forecast to be an explosive year: total sales are expected to jump 103% year-over-year, with memory chip growth reaching 298% — DRAM expected to grow 309%, NAND up 295%.

Five major themes driving this growth:

AI Data Center Systems Market: Projected to reach about $1.7 trillion by 2030, starting from about $273 billion in 2025.
Strength and endurance of memory chips: Long-term supply agreements provide 2-3 years of visibility in supply, demand, and pricing; Micron's cooperation with Anthropic is the latest example.
Semiconductor equipment/advanced packaging/EDA: Benefiting from extended supply agreements and increased chip complexity.
Analog chips: Benefit from increased electricity demand brought by AI.
Server CPUs: Agentic AI brings about $170 billion server market opportunity.

Memory Chips: No "Oversupply" Before 2028

Analysts judge that the supply-demand ratio for DRAM and NAND will remain at over 110% throughout the forecast period, so there will not be severe oversupply as seen historically. In terms of pricing, it's expected that DRAM and NAND spot/contract prices will stay strong throughout 2026, with no quarter-on-quarter declines before 2027.

Why is supply elasticity so low? There are several reasons:

Capital expenditure mainly goes to building factories, not buying equipment. Micron (Micron Technology) is expected to spend over $25 billion in capital expenditures in fiscal year 2026 (up from $13.8 billion in 2025), with most of the increment for building cleanroom factories rather than equipment. The actual chip-producing equipment investment will see large-scale deployment only by 2028.
Building cleanrooms and expanding capacity are two different things. The former costs more and takes longer; the latter actually impacts supply. This means that the large capital expenditure in 2026-2027 is essentially preparing for capacity expansion in 2028.
Micron's new Idaho plant is expected to have its first batch in mid-2027, only ramping up mass production in 2028. The Singapore HBM advanced packaging plant will begin contributing in 2027, and fully operate in 2028.
Geopolitics, packaging capacity, and power supply constraints are also limiting the speed of supply expansion.

HBM (High Bandwidth Memory) is the most watched product category in memory chips. The HBM market is expected to grow from about $35 billion in 2025 to about $246 billion in 2030, with a compound growth rate of 34%. The HBM capacity per AI accelerator is expected to increase from about 187GB in 2025 to about 464GB in 2030, a growth rate of 18%.

Nvidia's latest Vera Rubin system requires 288GB of HBM4 memory per accelerator.

Semiconductor Equipment: Spending to Exceed $250 Billion in 2028

Wafer manufacturing/semiconductor equipment spending (WFE) forecasts are another major upward adjustment in this report.

2028 semiconductor equipment (WFE) spending forecast has been significantly revised up 23% to $250 billion (up 32% YoY) from the previous $203 billion. The 2027 forecast is also up from $183 billion to $190 billion (+31% YoY).

Overall, WFE is expected to have a compound annual growth rate of 20% from 2025-2030.

Why 2028? Three key drivers:

First, cleanroom capacity will be released on a large scale around 2028. Much current capital expenditure is for construction, with equipment procurement concentrated after completion.

Second, technological node migration boosts equipment intensity. 2nm all GAA processes will accelerate mass production in 2026-2028; new processes early on have low yield and utilization, so equipment investment per wafer is higher. The introduction of High-NA EUV lithography machines is another major factor.

Third, memory chip tech upgrades. HBM upgrades from HBM3 to HBM4/5 with more layers and more complex packaging; NAND moves from 300 to 400 layers — both need more equipment.

Calculations show that, based on historical patterns for equipment investment per wafer, implied WFE spending is about $193 billion for 2027 and $245 billion for 2028, closely matching forecasts of $190/$250 billion.

It's worth noting that a certain metric may mislead: the WFE intensity, or the ratio of WFE to semiconductor sales, will drop from mid-teens historically to about 11%. This is mainly due to surging memory chip prices which inflate the denominator (sales), not a contraction in equipment demand. The more meaningful figure is equipment invested per wafer, which keeps rising.

HBM: From $35 Billion to $246 Billion

HBM is the core driver of this memory supercycle.

Forecasts show the HBM market will grow from about $35 billion in 2025 to about $246 billion in 2030, a compound annual growth rate of 34%. HBM capacity per AI accelerator is projected to rise from 187GB in 2025 to 464GB in 2030, a compound annual growth rate of 18%.

Nvidia's latest Vera Rubin system (coming in the second half of 2026) equips each accelerator with 288GB HBM4 — this number alone shows the direction.

HBM price forecast: About $17.5/GB in 2027-2028, higher than $14.3/GB in 2026.

Based on the above industry assessment, analysts at the bank have made substantial upward adjustments on target prices of several semiconductor stocks, and switched valuation benchmark years from 2027 to 2028:

For memory chips, analysts revised Micron's target price from $950 to $1,500, maintaining a Buy rating. For semiconductor equipment, Applied Materials' target price was raised from $540 to $720, and several firms such as MKS Instruments also saw upgrades. For AI infrastructure chips, they are bullish on Marvell, Credo, Intel, among others.

Consumer Electronics and Smartphones: Outsiders in the AI Feast

Not all segments are sharing the AI dividends.

Smartphone chip sales are expected to decline 13% YoY in 2026, PC chips by 9%, and overall consumer electronics by 7%. These markets face structural shipment declines, a sharp contrast to the explosive growth in AI data centers.

Automotive and industrial markets are moderately recovering: automotive chip sales are expected to grow 4% in 2026, industrial chips by 18%, mainly benefiting from demand recovery after inventory depletion and the continued increase in chips per vehicle.

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