W.050BofA’s base case has chip stocks falling around 10% more. Its main capex risk is spending holding near $1.2T a year, which it says could cut AI deployment to about 30 GW from more than 40

The scenarios

BofA’s base case is a smaller fall than the one already taken. The bank expects around 10% further downside, with chip stocks bottoming in the first quarter of 2027, according to Investing.com’s account of the note, which names no analyst. In a bear case the downturn runs into the middle of 2027. The index peaked in late June, and BofA reads that as a sign that earnings estimates could start falling in the first quarter of 2027; chip stocks typically fall six to nine months before earnings turn, it says. In past recoveries, once estimate cuts were priced in, the index rose 42% on average.

The decline is already deeper than BofA’s historical average. The bank says the index has fallen 37% from its recent peak, against an average correction of 32% in earlier downturns. The index closed at a record 14,635 on June 22. After falling 12.25% on November 5, its largest one-day drop since March 2020, it closed -38.4% below the record; Friday’s 4.2% rise left it -35.8% below. Ten percent off Friday’s close would be about 8,451, -42% from the record; BofA did not give an index level.

Valuation sets a floor in BofA’s reading. Chip stocks trade at 13.7 times forward earnings, a 22% discount to the S&P 500’s 17.7 times, the bank says; during the rally they traded at a 15% premium. A return to the historical trough of about 12 times would imply at most another 12% fall, if earnings estimates held.

The capex arithmetic

BofA’s capex figures line up. It puts US cloud capex at about $1.2T a year now, and forecasts for 2027 above $1.5T. If spending holds at today’s level rather than accelerating, BofA says, it would be roughly 20% below 2027 expectations: $1.2T is 20% below $1.5T. That, it says, could reduce planned AI deployment to around 30 GW from more than 40 GW in its baseline, at an estimated $40B a gigawatt. By our arithmetic, thirty gigawatts at that price is $1.2T, about today’s run rate; forty is $1.6T. BofA did not attach this risk to any of its three scenarios; the more than 40 GW is its baseline assumption. BofA estimates a 20% capex cut would mean sales more than 20% lower and a 35–40% hit to earnings per share for AI chip companies.

The companies’ own filings come to less than $1.2T. Amazon, Alphabet, Microsoft, Meta and Oracle spent $237B in their latest quarters, by their own capex measures, or about $0.95T a year at that pace. BofA’s figure is larger, so it must count spending beyond these five, or measure it differently; the report does not say which companies it includes. Only Microsoft has trimmed: it now expects about $170B for calendar 2026, citing delays in third-party capacity. Meta narrowed its 2026 range to $135–145B, Alphabet held $195–205B and expects a significant increase in 2027, and Amazon’s chief executive said it would spend meaningfully more in 2027.