Morgan Stanley upgraded ratings of Applied Materials (NASDAQ:AMAT) to Overweight, Lam Research (NASDAQ:LRCX) to Equal-weight, and downgraded KLA (NASDAQ:KLAC) to Equal-weight while revising its 2026 Wafer Fab Equipment market forecast.
Shares of Applied Materials climbed about 2%, Lam Research rose about 1%, while KLA dipped nearly 2% premarket on Monday.
Analysts led by Shane Brett said they have revised up their 2026 WFE forecast to $128B (up 10% year-over-year) from $122B (up 5% year-over-year), noting that the revision is almost entirely in memory where their base case ($48.7B) is now close to their bull case ($50B).
The analysts have raised their 2026 Dynamic Random-Access Memory, or DRAM, WFE forecast close to their bull case of $35B (Morgan Stanley estimate of $34.9B) and increased their NAND WFE forecast to $13.8B, slightly below their bull case of $15B.
Brett and his team noted that stronger DRAM pricing is likely to translate to stronger DRAM capital expenditure plans, but the benefits for NAND capex improvement may take a bit of a lag due to capex being allocated to DRAM and manufacturers trying to stay a bit more capital disciplined.
Applied Materials (NASDAQ:AMAT)
Morgan Stanley upgraded the stock to Overweight from Equal-weight and increased the price target on the shares to $209 from $172.
“AMAT currently trades at a 25% discount to LAM vs 10% average since 2023, and our new PT implies a 15% discount. With a 3:1 bull:bear skew, the most leverage to greenfield DRAM in our coverage, and our view that China, ICAPS [Internet of Things, Communications, Automotive, Power, and Sensors], and leading edge logic are derisked, we think risk reward is skewed to the upside,” said Brett and his team.
The analysts have raised their 2026 EPS forecast to $10.45 from $9.58.
Lam Research (NASDAQ:LRCX)
The analysts upgraded Lam’s rating to Equal-weight from Underweight and raised the price target on the stock to $125 from $92.
The analysts said memory end markets have turned for the better and they were wrong here, noting that they have raised their 2026 EPS forecast to $5.43 from $5.12.
“While we continue to model China to decline 3% in 2026, we now model NAND up 34% and non-China logic up 16%, and for LAM to outperform WFE for the 3rd consecutive year (15% vs10%),” the analysts added.
The analysts noted that they think they need to underwrite $24B of revenue and $6 EPS for further upside, and hence Equal-weight.
KLA (NASDAQ:KLAC)
“KLA’s operations have strengthened through the year as the company’s growth drivers (TSMC [Taiwan Semiconductor Manufacturing], DRAM, Advanced Packaging) have gone from strength to strength, but at a 30% valuation premium vs AMAT/LAM, we find relative outperformance hard to call,” said Brett and his team.
The analysts have raised their 2026 EPS forecast to $39.03 from $37.11.