Nvidia, Broadcom Still Among BofA's Top Chip Picks After Tariff Delay

Bank of America’s Q2 2025 semiconductor analysis underscores a resilient outlook for select chipmakers despite ongoing tariff volatility. While the Trump administration’s 145% tariffs on Chinese goods initially exempted semiconductor components, the delay in applying tariffs to chips themselves has bolstered investor confidence in U.S.-centric firms like Nvidia (NVDA) and Broadcom (AVGO). The bank’s recommendations pivot around two core themes: AI-driven growth in the first half of 2025 and a cyclical rebound in auto/industrial sectors later in the year, with strategic positioning critical amid geopolitical headwinds.

AI Momentum Sustains Leadership

BofA analysts, led by Vivek Arya, reaffirm Nvidia as the sector’s crown jewel, citing its dominance in AI infrastructure and the Blackwell chip rollout for U.S. cloud providers. The firm’s $1.2 trillion market cap and 30%+ revenue growth in AI segments justify its “Buy” rating, even as broader market volatility persists.

Broadcom (AVGO) and Marvell Technology (MRVL) also retain top-tier status due to robust data center and networking demand. Broadcom’s $70 billion acquisition of VMware further solidifies its position in enterprise computing, while Marvell’s focus on high-speed networking chips aligns with hyperscaler expansion.

Tariff Impact: Winners and Losers Defined by Strategy

The tariff delay has created a stark divide between companies with domestic manufacturing and offshore exposure. BofA highlights Lam Research (LRCX) and Cadence Design Systems (CDNS) as beneficiaries of U.S. production incentives and resilient demand. Lam’s leadership in flash-memory tools positions it to capitalize on China’s semiconductor ambitions, while Cadence’s EDA software maintains 15-20% annual revenue growth despite macroeconomic risks.

Conversely, offshore-dependent firms like Coherent (COHR) and Lumentum (LITE) underperformed, with their stocks down 20-30% year-to-date. High-debt issuers such as MKS Instruments (MKSI) faced margin pressures, underscoring the premium placed on financial discipline.

Auto/Industrial Plays Gain Traction

BofA anticipates a second-half cyclical rebound in automotive and industrial chips, driven by inventory restocking and EV adoption. ON Semiconductor (ON) is a prime beneficiary, with its EV power management solutions targeting a $100 billion market by 2026. The firm’s 2025 revenue guidance of $9.5 billion reflects confidence in auto sector recovery.

Cadence (CDNS) further cements its crossover appeal, leveraging AI’s slowdown to expand its design tools’ reach. The bank’s analysts note Cadence’s 25% gross margins and $15 billion market cap as proof of its software-driven resilience.

Taiwan Semiconductor’s (TSM) Cautionary Optimism

Despite a $240 price target cut from BofA due to tariff risks, TSM remains a “Buy” at 14x 2025 P/E, with analysts citing its $60 billion annual capital expenditures and 3nm leadership. The consensus $231 average target price (up 60% from current levels) reflects optimism about China’s manufacturing ambitions and U.S.-Taiwan partnerships.

Strategic Shifts and Risks

BofA warns that AI growth may decelerate post-2025, urging investors to diversify into auto/industrial names. The bank also highlights Intel’s proposed joint venture with TSM, where the latter would hold 20% equity in a new U.S. production venture. While this could ease supply chain risks, compliance with the CHIPS Act and return-on-investment hurdles remain unresolved.

Conclusion: Dual-Track Strategy for Semiconductor Investors

Bank of America’s analysis paints a sector divided between near-term AI brilliance and longer-term cyclical resilience. The $725 billion 2025 revenue forecast (up 15% YoY) suggests strong fundamentals, but tariffs and geopolitical risks demand tactical positioning.

Investors should prioritize:
1. AI leaders: Nvidia (NVDA) and Broadcom (AVGO) for first-half momentum.
2. Auto/industrial plays: ON Semi (ON) and Cadence (CDNS) for second-half recovery.
3. Domestic champions: Lam Research (LRCX) and Texas Instruments (TXN) to mitigate tariff exposure.

With the Philadelphia Semiconductor Index down 10% in Q2 but outperforming the S&P 500, the sector’s bifurcated trajectory is clear. As BofA’s Vivek Arya quips, “In AI we trust—until we don’t. Then, the auto revival waits.” For now, the chips are still down, but the game remains worth the candle.