AI spending + cyclical recovery driving double engine! JP Morgan bullish on semiconductor for another "bumper year", first recommending NVIDIA Corporation (NVDA.US), Micron (MU.US), etc.

JPMorgan Chase published a research report stating that with the continued strong AI spending and accelerated trend of cyclical recovery, the semiconductor industry is expected to have another outstanding year in 2026, with the industry as a whole continuing to outperform the market. Analysts led by Harlan Sur stated in the report that it is expected that most companies will deliver results that meet or exceed expectations in the upcoming fourth quarter earnings season of 2025 (and looking ahead to a broader 2026), and will provide positive guidance for the first quarter and full year of 2026. This will continue the trend of positive earnings revisions over the past few quarters, providing support for stock performance. In the third quarter, over 70% of the covered companies achieved profit upgrades, a trend expected to further accelerate in the fourth quarter earnings season. Moreover, JPMorgan Chase believes that the fundamentals supporting the strong growth of AI-related infrastructure remain solid. The surge in inference demand and the increase in AI workload computational intensity are driving demand, and the capacity for the 2026 related supply chain (especially in advanced process wafer foundry and storage and flash memory fields) is already almost fully booked. In addition to possible short-term upside from efficiency improvements, the outlook for 2027 based on strong orders and backlogs will also support stock prices. The bank expects significant upside in the AI accelerator market size compared to previous expectations, with a forecasted compound annual growth rate of 50% in the next few years following the $200 billion investment in 2025, with incremental spending covering the entire semiconductor value chain. Looking at the cyclical end-market perspective, demand signals are pointing to a more synchronized recovery this year. With channel and customer inventories at low levels, this will drive broad market growth such as analog chips beyond seasonal patterns. The bank predicts that semiconductor industry revenue will grow by over 15% this year, with wafer manufacturing equipment spending increasing by 12-15% year-on-year. However, the report also warns that although it has not yet affected demand, the continuous rise in storage chip prices may potentially constrain demand for PCs and smartphones in the second half of the year. In terms of specific subsectors, JPMorgan Chase maintains an optimistic view on the storage cycle, expecting industry discussions to focus on how long supply constraints will continue, and enterprise solid-state drive demand will be an important lever for NAND flash memory price increases. The semiconductor equipment sector outlook is positive, with capital spending growth expected to show a low-to-high trend in 2026. Demand for chip design software and intellectual property is steady, expected to return to the normal pace of "exceeding expectations and raising guidance". Based on the above assessment, JPMorgan Chase reaffirms its positive outlook on the following companies: Broadcom Inc. (AVGO.US), Marvell Technology, Inc. (MRVL.US), NVIDIA Corporation (NVDA.US), Analog Devices, Inc. (ADI.US), and Micron Technology, Inc. (MU.US) in the semiconductor field; KLA Corporation (KLAC.US) preferred in the semiconductor equipment sector; and Synopsys, Inc. (SNPS.US) recommended in the chip design software field. It also shows confidence in Lam Research Corporation (LRCX.US), Cadence Design Systems (CDNS.US), Applied Materials (AMAT.US), Western Digital Corporation (WDC.US), and other companies.