Shares of three chip equipment makers jumped on Wednesday after Citi raised their price targets and kept Buy ratings. Applied Materials rose 8%, Lam Research gained 5.4%, and KLA added 2.8% in midday trading. Citi pointed to strong and steady AI spending by large tech companies as the main reason. All three stocks have more than doubled this year. Here’s what the new targets mean and why demand for wafer fab equipment keeps rising.
Citi made big changes to its price targets. The firm now sees Applied Materials at $710, up from $550, Lam Research at $450, up from $315, and KLA at $290, up from $206.40. These increases are based on a wafer fab equipment market that Citi expects to grow from about $145 billion this year to $200 billion in 2027 and $250 billion in 2028. The main driver is higher spending by large tech companies, which Citi predicts will rise by 84% this year, 56% in 2027, and 38% in 2028. Amazon, Microsoft, Alphabet, Meta Platforms, and Oracle together are expected to spend over $1.1 trillion in 2027, up from about $650 billion this year.
Applied Materials, Lam Research, and KLA all make wafer fab equipment, which turns raw silicon wafers into finished microchips. In addition to the growth from AI servers, Citi also pointed to rising demand for NAND flash memory. As agentic AI grows, memory needs are increasing, DRAM supply is getting tighter, and demand for NAND storage is rising. The analyst said this lasting increase in memory demand helps all three companies, not just those focused on logic chip equipment.
Earlier this week, Barclays also raised price targets for these three stocks. The firm increased Applied Materials to $590 from $500, KLA to $2,250 from $1,700, and Lam Research to $335 from $275, again citing higher estimates for the wafer fab equipment market. Barclays maintained Overweight ratings on Applied Materials and KLA and a Neutral rating on Lam Research.
