Applied Materials Inc. (AMAT) shares climbed nearly 7% on Thursday, leading a broad rally in semiconductor stocks after reports emerged that Meta Platforms Inc. plans to begin manufacturing its in-house artificial intelligence chip, codenamed 'Iris,' in September. The news boosted sentiment around wafer fabrication equipment makers and AI infrastructure spending.
The rally extended to other semiconductor equipment names, with Lam Research Corp. and KLA Corp. each rising more than 6%. Optical networking company Lumentum Holdings Inc. posted the largest gain in the S&P 500. The move reflects growing investor confidence that hyperscale data center investments will sustain demand for chip-making tools.
Meta's AI Chip Plans Drive Equipment Optimism
According to a Reuters report, Meta expects to begin work on its custom-built AI data center chip using advanced silicon. This development is seen as a positive catalyst for companies supplying wafer fabrication equipment, which transforms raw silicon wafers into microchips. The news comes amid rising expectations for capital expenditure by major technology firms.
Citi analysts project the wafer fabrication equipment market will expand from approximately $145 billion this year to $200 billion in 2027 and $250 billion in 2028. The brokerage also forecasts hyperscaler spending—by Amazon, Microsoft, Alphabet, Meta, and Oracle—to increase 84% in 2025, 56% in 2027, and 38% in 2028. Total spending by these firms is expected to exceed $1.1 trillion in 2027, up from $650 billion this year.
Analysts Raise Price Targets on Applied Materials
Several brokerages turned more bullish on semiconductor equipment makers following the news. Mizuho Securities raised its price target on Applied Materials to $650 from $540, maintaining an Outperform rating. The firm also increased its target on Lam Research to $400 from $380.
TD Cowen lifted its Applied Materials target to $700 from $525, keeping its rating unchanged. The brokerage models wafer fabrication equipment spending reaching $250 billion in 2028 and potentially $400 billion by 2030, supported by strong industry profitability and take-or-pay agreements. Under the $250 billion scenario, TD Cowen estimates Applied Materials could generate earnings of about $25 per share, compared with its calendar 2026 estimate of $13.35. Lam Research could earn between $11 and $12 per share, while KLA could generate $9 to $10 per share. The firm identified Applied Materials as the biggest beneficiary, followed by KLA, due to their exposure to leading-edge semiconductor manufacturing and DRAM investment.
CEO Highlights AI Demand Visibility
Investor sentiment was further bolstered by comments from Applied Materials CEO Gary Dickerson. In an interview with Nikkei Asia, Dickerson stated that the company has 'tremendous visibility' into customer demand over the next 24 months. He noted that chipmakers are providing equipment demand forecasts at least two years in advance, giving the company confidence that the AI-driven semiconductor investment cycle still has years to run.
For context on broader market movements, the FTSE 100 Edges Up 0.2% as Shell Lifts Energy Sector; Miners Weigh and the Stoxx 600 Hits Record 653 as BofA Lifts Year-End Target to 630 on Growth Hopes highlight the global investor appetite for growth sectors. Meanwhile, the TeraWulf Stock Jumps 17% on $19B Anthropic AI Data Center Lease Deal underscores the ongoing demand for AI infrastructure.
Technical Outlook for Applied Materials
Applied Materials continues to trade above its 20-day, 50-day, and 200-day simple moving averages. The relative strength index stands at 53.70, a neutral reading. Traders are watching the 20-day moving average near $503 as the first support level, while the 52-week high near $739.67 represents the next major resistance.
This article is for informational purposes only and does not constitute financial advice.
