Applied Materials, KLA stocks gain as AI boom lifts chip equipment outlook

Shares of semiconductor equipment makers moved higher after analysts raised expectations for the wafer fabrication equipment market, arguing that growing artificial intelligence investment continues to support long-term demand across the industry.

While chip stocks have come under pressure in recent sessions, analysts say the outlook remains favorable for companies that supply the tools needed to manufacture semiconductors.

Barclays reaffirmed its Overweight ratings on Applied Materials and KLA while raising its price targets on both companies.

The investment bank lifted its target on Applied Materials to $590 from $500 and increased its target on KLA to $2,250 from $1,700.

Barclays also maintained a Neutral rating on Lam Research and raised its price target to $335 from $275.

All three stocks have surged at least 75% this year.

On Thursday's session, Applied Materials AMAT gained 6.6%, KLA advanced 8.6%, and Lam Research rose 8.2%.

Barclays sees stronger wafer equipment spending

A key driver behind Barclays' bullish stance is its revised outlook for the wafer fabrication equipment market.

The bank increased its estimate for the total wafer fab equipment market to US$154 billion (approx. $214.7 billion) from a prior forecast of US$139 billion (approx. $193.8 billion).

It now expects the market to grow another 36% to US$209.5 billion (approx. $292 billion) in 2027, significantly higher than its previous estimate of US$159 billion (approx. $221.6 billion).

According to Barclays analyst Tom O'Malley, artificial intelligence remains the primary catalyst behind the stronger spending outlook.

"The capex cycle is much stronger across the board," wrote analyst Tom O'Malley.

The analyst pointed to heavy investment from memory manufacturers, including Micron Technology, SK Hynix, and Samsung Electronics.

Continued supply constraints and strong demand are also encouraging spending by advanced chip producers such as Taiwan Semiconductor Manufacturing and Intel.

These investments are expected to benefit equipment suppliers that provide the tools required to manufacture increasingly sophisticated semiconductors.

Applied Materials draws fresh analyst support

Applied Materials received additional support from other Wall Street firms.

Cantor Fitzgerald raised its price target on the stock to $650 from $575 while maintaining an Overweight rating.

The firm argued that Applied Materials is positioned at the center of a long-term expansion cycle in semiconductor manufacturing equipment.

According to Cantor, industry wafer fabrication equipment spending could approach US$250 billion (approx. $348.5 billion) as the semiconductor market grows toward US$3 trillion (approx. $4.2 trillion) by 2029.

The brokerage also highlighted the company's long-term order visibility.

For traders, the key phrase is "bookings visibility into 2028."

Analysts often view extended order backlogs as a sign of durable demand, particularly in industries that have historically experienced cyclical swings.

UBS also raised its target on Applied Materials to $570 from $515 while reiterating a Buy rating.

Meanwhile, the company continues to invest in manufacturing capacity.

Applied Materials is spending approximately US$500 million (approx. $697 million) on a new campus in Singapore's Tampines region. The expansion is expected to more than double advanced cleanroom capacity and create around 1,000 jobs.

KLA benefits from AI-driven demand

KLA shares have also benefited from growing confidence in long-term semiconductor equipment demand.

Investors are increasingly 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 responded by raising their price targets on KLA, reflecting expectations that the current spending cycle could persist for years.

Supporters of the sector 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.