Bank of America Securities analyst Vivek Arya believes the AI industry boom is not cooling down but continues to expand in scale.

Despite skepticism from some market participants who argue that valuations in the sector are excessively high and investors should exit early, Arya maintains that the decade-long transformation of the AI industry is only at its "mid-stage," with NVIDIA and Broadcom as the undisputed leaders.

In a report titled *2026 Outlook: Volatile but Still Favorable*, Arya predicts a 30% year-over-year surge in global semiconductor sales by 2026, pushing annual industry revenue past the historic $1 trillion milestone for the first time.

Arya emphasizes his confidence in companies whose "moat advantages are clearly reflected in their profit structures." Besides NVIDIA and Broadcom, he also lists four other semiconductor leaders—Lam Research, KLA-Tencor, Analog Devices, and Cadence Design—as top picks for 2026.

"Investing in semiconductors is actually quite simple," Arya told reporters during an analyst call on December 19. "You don’t even need sell-side research—just rank semiconductor companies by gross margin and buy the top five, and you’ll rarely go wrong."

Bank of America Securities estimates that by 2030, the total addressable market for AI data center systems will exceed $1.2 trillion, with a 38% annualized growth rate. The AI accelerator segment alone presents a $900 billion opportunity.

Despite these impressive figures, market sentiment remains cautious due to the exorbitant costs of building AI data centers. According to the firm, a standard 1-gigawatt AI data center requires over $60 billion in capital expenditure, with roughly half allocated to hardware procurement.

This raises a critical question: Can these massive investments deliver substantial returns?

Arya remains optimistic, arguing that current AI investments are both offensive and defensive strategies. Tech giants have no choice but to keep investing to protect their market positions.

He notes that NVIDIA, now the world’s most valuable company, operates in a league of its own.

With its stock up over 40% this year, Arya warns against comparing NVIDIA to traditional chipmakers. While a standard chip costs around $2.40, one of NVIDIA’s GPUs sells for approximately $30,000—placing them in entirely different categories.

Despite concerns about NVIDIA’s valuation peaking, Bank of America projects $500 billion in free cash flow over the next three years, suggesting the stock remains "highly attractive" when adjusted for growth.

NVIDIA’s PEG ratio stands at just 0.6x, compared to the S&P 500’s 2x, indicating undervaluation.

"Valuation is always subjective," Arya acknowledged.

If NVIDIA is the "brain" of AI, Broadcom is its "nervous system."

Broadcom’s stock has surged over 50% this year, with its market cap reaching $1.6 trillion. The company has evolved from a chip component supplier to a core AI infrastructure player, driven by custom ASICs for tech giants like Google and Meta, which are reducing reliance on NVIDIA.

Other Wall Street firms share this view. Goldman Sachs analyst James Schneider dubbed Broadcom the "arms dealer" of the AI boom, setting a $450 price target. He highlights its dominance in custom chips and deepening partnerships with leading AI firms like Anthropic and OpenAI as catalysts for further upside.

While optimistic, Arya acknowledges the semiconductor industry’s path to $1 trillion will be volatile. No stock is "zero-risk," but his six 2026 picks share a key trait: dominant market positions, with 70-75% share in their respective niches.