Investing.com -- RBC Capital Markets has begun coverage of the semiconductor and semicap space with a neutral stance, arguing that cooling momentum after a powerful AI-driven rally warrants a more balanced approach to positioning across the sector.
While concerns around an AI bubble have risen, the brokerage still expects hyperscale capital spending to remain robust over the next 18 to 24 months as competition for AI leadership intensifies, monetization trends continue to improve, and hyperscaler financials "do not appear stressed."
On the flip side, infrastructure bottlenecks are emerging, and some project delays look inevitable, analyst Srini Pajjuri said.
Although sentiment shifts and circular financing arrangements could weigh on parts of the ecosystem, the analyst expects any "eventual spending slowdown to be gradual rather than abrupt."
He argues that the race for AI leadership will take time to settle, scaling laws remain intact, and the push toward artificial general intelligence (AGI) implies a much larger long-term need for compute.
Having said that, Pajjuri warns that even a moderate deceleration could have an outsized impact on stocks given the sector's bullish growth expectations.
Beyond AI, RBC sees a relatively stable backdrop. PC, smartphone and industrial demand is described as steady, channel inventories are lean, and valuations outside the core AI winners appear reasonable.
Pajjuri estimates the broader semiconductor industry is on track to grow more than 20% in 2026, driven primarily by data center demand, with another double-digit year possible in 2027.
However, he flags that margin expansion could be more muted than in prior cycles due to higher capital intensity at mature nodes and growing domestic competition in China.
Meanwhile, valuations remain "at a premium albeit justified in many cases in our view," the analyst added.
A key structural theme is high-bandwidth memory (HBM), which Pajjuri calls a "transformative secular driver" that should help reduce cyclicality.
RBC expects HBM to grow at a compound annual rate above 40% through 2028, driven by increasingly memory-intensive AI workloads and the transition to HBM4, which carries a sizable average selling price (ASP) premium.
While higher memory prices could weigh on some end markets, Pajjuri expects demand to outpace supply into 2027.
Within semicap equipment, RBC sees upward bias to wafer fab equipment (WFE) spending over the next two years despite a slowdown in China. Pajjuri points to advanced logic, memory and packaging as key supports, alongside technology shifts such as backside power and 3D structures.
"Geopolitics and potential re-emergence of leading-edge foundry competition from Samsung (and Intel, Rapidus) are the other positives," the analyst added.
Within this backdrop, RBC initiated coverage on nine stocks with Outperform ratings, including Nvidia, Micron, Marvell, Arm, Astera Labs, ASML, Applied Materials, Lam Research and Lattice Semiconductor, while assigning Sector Perform ratings to Broadcom, AMD, Intel, Qualcomm, KLA, Skyworks, Silicon Laboratories and Sandisk.