Key points
- Bank of America compares Nvidia, Broadcom, and Micron to Cisco
- Why Bank of America says AI isn't 2000
- Wells Fargo's strategist favors software over chip stocks
Bank of America analyst Vivek Arya says Nvidia (NVDA), Broadcom (AVGO), and Micron Technology (MU) are already priced like Cisco Systems (CSCO) after the dot-com crash. "Investors are paying post-crash multiples for a cycle that hasn't crashed," Arya wrote in a note to clients dated Friday, according to Benzinga.
By Arya's estimates, the three chipmakers trade at about 13 times forward earnings on average, inside the 10 to 20 times range Cisco traded at after the bubble burst. Those multiples depend on earnings forecasts holding up. Lower profit estimates would make the stocks look less inexpensive at the same share prices. The note landed as chip stocks headed for a weekly drop of about 10%, while other investors are betting that software, not chips, will lead the next stage of the AI trade.
As of 11:30 a.m. Eastern on Friday, the iShares Semiconductor ETF (SOXX) was down 9.8% for the week, after eight straight daily declines through Thursday. Micron was down 12.5% for the week, Broadcom 7.1%, and Nvidia 5.4%. The SPDR S&P 500 ETF (SPY) was down 1.2%.
Memory stocks fell after Chinese memory maker CXMT said over the weekend of Oct. 10 that it plans to launch server memory using a smaller memory-cell design by year-end. Wednesday's hotter-than-expected inflation report added another concern for investors.
Bank of America says AI hardware is running near full capacity
The dot-com bust left miles of fiber-optic cable unused. Arya says AI hardware runs near 100% utilization, and that rental prices for older Nvidia chips launched between 2020 and 2024 are up 12% to 37% this year. Weekly usage on OpenRouter's own platform, which routes requests to AI models, hit about 170 trillion tokens in early October, up from about 3 trillion a year earlier.
He named three risks to that view: a debt default or other financing trouble at an AI cloud provider, higher interest rates, and delays in power and permitting. Bank of America expects cloud companies and AI cloud providers to spend about $1.01 trillion on capital projects in 2026, up 98%, and $1.39 trillion in 2027.
Cisco shows how long a reset can take. The stock closed at a record $80.06 on March 27, 2000, and traded as low as $8.12 in October 2002. It didn't close above that 2000 record until Feb. 2, 2026. Cisco now trades at about 19 times forward earnings, based on Yahoo Finance estimates.
Our AI Bubble Index read 61 out of 100 on Friday, in its "Heated" band. Its valuation component, the median forward price-to-earnings ratio of 10 AI large caps, stood at 19.6.
Wells Fargo's strategist expects software to lead in 2027
"[2027] could be a year where AI applications win over the AI build-out," Ohsung Kwon, chief equity strategist at Wells Fargo, said in a CNBC interview earlier this month. "Meaning hyperscalers, infrastructure software, over semis." Kwon expects AI spending to peak in 2027 and flatten in 2028.
Over the past three months, the iShares Expanded Tech-Software Sector ETF (IGV) has climbed more than 13% while SOXX has fallen more than 4%. This week, IGV was down 6.9% as of Friday morning, including a 4.3% drop on Friday.
Bank of America's software analyst, Tal Liani, says the shift will help companies that already own the platforms people work in every day. "If AI 1.0 was the model, AI 2.0 was the agent, then AI 3.0 is the interface," he wrote.
Kwon turned cautious in September, expecting a reset in market expectations that could bring a 5% to 10% drop by the end of the year. "There's going to be an end to it, and people are starting to think about what that end looks like," he said.
