Wells Fargo upgraded both KLA (KLAC) and Lam Research (LRCX) to Overweight from Equal-weight due to a likely acceleration in the wafer fabrication equipment market.
Applied Materials (AMAT) remains Wells Fargo’s “top pick” among the semiconductor equipment sector.
Lam Research and KLA were up 9% and 6%, respectively, during early market trading on Thursday. Applied Materials was up 7.5%.
“Although semi cap is now a consensus long & has outperformed YTD, avg +20% vs. Philadelphia Semiconductor Index (SOX) +9%, we think the group can continue to work as we expect demand data points to suggest a further tightening of logic & memory supply/demand dynamics supportive of a WFE acceleration in 2027,” said Wells Fargo analysts, led by Aaron Rakers, in a Thursday investor report. “We increase our WFE estimate by an average of 10% & raise C2026 & C2027 estimates to above Street.”
Wells Fargo increased its price target on KLA to $1,600 from $1,250 and raised Lam’s to $250 from $145.
“We are upgrading KLA to Overweight from Equal Weight as we think the company can continue to drive WFE outperformance by 2 nm momentum,” Rakers noted. “We expect positive 2 nm demand dynamics to continue in 2026, in which we expect inspection sample rates to remain elevated as the industry begins to introduce BSPD.”
Meanwhile, Lam is expected to outperform due to memory supply and demand dynamics.
“While we expect Lam to reiterate that its estimated $40B of incremental spending on NAND to upgrade >2XXL will play out over multiple years, increasing tightness in the NAND industry will leave it focused on an acceleration in 2026/2027,” Rakers added.
Earlier this week, Stifel said it expects WFE spending to increase by 10% to 15% in 2026, which equates to $10B to $15B in year-over-year growth. The gains will be led by advanced foundry/logic and DRAM.