Shares of semiconductor equipment makers Applied Materials (AMAT) and KLA (KLAC) posted strong gains on Thursday after Barclays raised its outlook for the wafer fabrication equipment market, citing robust artificial intelligence investment as a key driver of long-term demand.
While broader chip stocks have faced pressure in recent sessions, analysts argue that companies supplying the tools needed to manufacture semiconductors remain well-positioned. Barclays reaffirmed Overweight ratings on both Applied Materials and KLA while lifting price targets significantly. The bank raised its target on Applied Materials to $590 from $500 and increased its KLA target to $2,250 from $1,700. Lam Research (LRCX) was maintained at Neutral, with its price target raised to $335 from $275.
On Thursday, Applied Materials gained 6.6%, KLA advanced 8.6%, and Lam Research rose 8.2%. All three stocks have surged at least 75% year-to-date.
Barclays Boosts Wafer Fab Equipment Spending Forecast
The bullish stance is underpinned by Barclays' revised estimates for the wafer fabrication equipment market. The bank increased its total wafer fab equipment market forecast to $154 billion from $139 billion, and now expects the market to grow 36% to $209.5 billion by 2027—well above its prior estimate of $159 billion.
Analyst Tom O'Malley highlighted that artificial intelligence remains the primary catalyst behind stronger spending. "The capex cycle is much stronger across the board," O'Malley wrote, pointing to heavy investment from memory manufacturers such as Micron Technology, SK Hynix, and Samsung Electronics. Continued supply constraints and robust demand are also driving spending by advanced chip producers like Taiwan Semiconductor Manufacturing and Intel.
These investments are expected to benefit equipment suppliers that provide the tools required for increasingly sophisticated semiconductors. For context, the broader chip sector has seen recent volatility, as noted in our coverage of Dow Surges 246 Points as Chip Stocks Recover Amid Middle East Tensions.
Applied Materials Draws Additional Analyst Support
Applied Materials received further backing from other Wall Street firms. Cantor Fitzgerald raised its price target to $650 from $575 while maintaining an Overweight rating, arguing the company is at the center of a long-term expansion cycle in semiconductor manufacturing equipment. Cantor estimates industry wafer fabrication equipment spending could approach $250 billion as the semiconductor market grows toward $3 trillion by 2029.
The brokerage also highlighted the company's long-term order visibility, noting that the key phrase for traders is "bookings visibility into 2028." Extended order backlogs are often viewed as a sign of durable demand in an industry historically prone to cyclical swings. UBS also raised its target on Applied Materials to $570 from $515, reiterating a Buy rating.
Meanwhile, Applied Materials is investing approximately $500 million in a new campus in Singapore's Tampines region, expected to more than double advanced cleanroom capacity and create around 1,000 jobs.
KLA Benefits from AI-Driven Demand and Extended Visibility
KLA shares have also benefited from growing confidence in long-term semiconductor equipment demand. Investors are betting that spending on advanced chip manufacturing equipment will remain elevated as artificial intelligence drives investment at foundries and logic chip plants. Analysts noted that customer bookings already extend into 2028, providing greater visibility into future demand.
Several Wall Street firms have raised price targets on KLA, reflecting expectations that the current spending cycle could persist for years. Supporters argue that wafer fabrication equipment spending is entering a sustained, supply-constrained growth phase. The combination of strong AI-related demand, extended order visibility, and increasing analyst optimism has helped fuel renewed buying interest in semiconductor equipment stocks despite recent volatility elsewhere in the chip sector.
For investors tracking institutional moves, our article on 5 Stocks Drawing Heightened Institutional Interest Ahead of Key Earnings Week provides additional context on market dynamics.
This article is for informational purposes only and does not constitute financial advice.
