Applied Materials stock jumps as Meta AI chip plan lifts semiconductor names

Applied Materials Inc. shares AMAT climbed nearly 7% on Thursday as semiconductor stocks rallied after reports that Meta Platforms plans to begin manufacturing its in-house artificial intelligence chip in September, boosting optimism around demand for wafer fabrication equipment and AI infrastructure.

The broader semiconductor rally also lifted Lam Research and KLA Corp., while optical networking company Lumentum led gains in the S&P 500.

Meta AI chip plans lift semiconductor equipment stocks

Applied Materials gained nearly 7%, while Lam Research and KLA rose more than 6% as investors reacted to reports that Meta expects to begin work on its AI data-center chip, codenamed "Iris," using custom-built silicon. Reuters first reported the development.

The move was viewed as a positive development for companies supplying wafer fabrication equipment used to convert raw silicon wafers into microchips.

The rally comes as expectations continue to build around rising capital expenditure by hyperscale technology companies.

According to Citi, the wafer fabrication equipment market is expected to grow from about $145 billion this year to $200 billion in 2027 and $250 billion in 2028.

The brokerage also forecasts hyperscaler spending to increase 84% this year, 56% in 2027 and 38% in 2028.

Amazon, Microsoft, Alphabet, Meta Platforms and Oracle are expected to spend more than $1.1 trillion in 2027, up from $650 billion this year.

Analysts raise price targets on Applied Materials

Brokerages also turned more optimistic on semiconductor equipment makers.

Mizuho Securities raised its price target on Applied Materials to $650 from $540 while maintaining its Outperform rating. It also increased its target on Lam Research to $400 from $380.

TD Cowen lifted its price target on Applied Materials to $700 from $525 while maintaining its rating on the stock.

The brokerage models wafer fabrication equipment spending reaching $250 billion in 2028 and potentially $400 billion by 2030, supported by stronger industry profitability and demand backed by take-or-pay agreements.

Under its $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 said Applied Materials would be the biggest beneficiary under that scenario, followed by KLA because of their exposure to leading-edge semiconductor manufacturing and DRAM investment.

CEO highlights AI demand visibility

Investor sentiment also received support from comments by Applied Materials CEO Gary Dickerson.

In an interview with Nikkei Asia, Dickerson said Applied Materials has “tremendous visibility” into customer demand over the next 24 months.

He added 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.

Applied Materials continues to trade above its 20-day, 50-day and 200-day simple moving averages.

Its relative strength index stands at 53.70, a neutral reading, while traders are watching the 20-day moving average near $503 as the first support level and the 52-week high near $739.67 as the next major resistance.