Bank of America maps chip recovery path after 37% fall

The Philadelphia Semiconductor Index's 37% drop already exceeds the 32% average correction of previous downturns, yet BofA argues the selloff may not have run its course because cheaper valuations alone are unlikely to restore confidence. The bank points to the sector's 13.7 times forward earnings — a 22% discount to the S&P 500's 17.7 times — but notes that a return to the historical trough of around 12 times would still imply at most another 12% downside.

History offers a template: semiconductor downturns typically begin six to nine months before the fundamental earnings turn, and the SOX has gained an average of 42% during previous recoveries once estimate cuts were priced in. BofA sees the late-June 2026 market peak as a possible signal that earnings estimate reductions could start in the first quarter of 2027, as companies adjust second-half spending plans.

The biggest variable remains AI spending. U.S. cloud capital expenditure is running at an annualized rate of about $1.2 trillion, with forecasts pointing to more than $1.5 trillion in 2027. If spending merely stabilizes at current levels rather than accelerating, that would be roughly 20% below 2027 expectations and could cut planned AI infrastructure deployment to around 30 gigawatts from more than 40 gigawatts in BofA's baseline, a shift that may create substantial pressure on semiconductor revenue and earnings.