J.P. Morgan has published a research report indicating that, driven by sustained strong artificial intelligence (AI) spending and accelerating cyclical recovery trends, the semiconductor industry is poised for another year of outperformance in 2026, with the sector expected to continue beating the broader market.
Analysts, led by Harlan Sur, stated in the report that they anticipate most companies will report results meeting or exceeding expectations during the upcoming Q4 2025 earnings season (and looking more broadly into 2026), while also providing positive guidance for Q1 FY2026 and the full year.
This is expected to extend the multi-quarter trend of positive earnings revisions, thereby providing support for stock price performance.
In the third quarter, over 70% of the covered companies saw earnings estimates revised upward, a trend projected to accelerate further during the Q4 earnings season.
Furthermore, J.P. Morgan believes the fundamental drivers supporting robust growth in AI-related infrastructure remain solid.
Surging inference demand and increasing computational intensity of AI workloads are jointly fueling requirements, while capacity across the relevant supply chain (particularly in advanced process wafer fabrication, memory, and flash storage) for 2026 is largely already booked.
Beyond potential near-term upside from efficiency gains, the outlook for 2027, underpinned by strong orders and backlogs, is also expected to support stock prices.
The bank projects significant upside potential for the total addressable market of AI accelerators compared to prior expectations, forecasting a compound annual growth rate of approximately 50% in the coming years, building on an estimated $200 billion investment base in 2025, with incremental spending permeating the entire semiconductor value chain.
From the perspective of cyclical end markets, demand signals are pointing towards a more synchronized recovery this year.
Against a backdrop of low channel and customer inventory, this is expected to drive growth in broad markets, such as analog chips, beyond typical seasonal patterns.
J.P. Morgan predicts semiconductor industry revenue will grow by more than 15% this year, with wafer fabrication equipment spending increasing by 12-15% year-over-year.
However, the report also cautions that while demand has not been impacted thus far, rising memory chip prices could potentially constrain PC and smartphone demand in the second half of the year.
Regarding specific sub-sectors, J.P. Morgan maintains an optimistic view on the memory cycle, anticipating that industry commentary will focus on how long supply tightness will persist, with enterprise solid-state drive demand acting as a key lever for NAND flash price increases.
The outlook for the semiconductor equipment sector is positive, with capital expenditure growth in 2026 expected to be weaker in the first half and stronger in the second half.
Demand in the chip design software and intellectual property sector remains solid, poised to return to a normalized rhythm of "beating expectations and raising guidance."
Based on this analysis, J.P. Morgan reiterated its positive stance on the following companies: its top picks in semiconductors are Broadcom (AVGO.US), Marvell Technology (MRVL.US), NVIDIA (NVDA.US), Analog Devices (ADI.US), and Micron Technology (MU.US); it prefers KLA-Tencor (KLAC.US) in the semiconductor equipment space; and recommends Synopsys (SNPS.US) in chip design software.
The bank is also bullish on Lam Research (LRCX.US), Cadence Design (CDNS.US), Applied Materials (AMAT.US), Western Digital (WDC.US), among others.
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