Citi has issued a research report, raising the price target for Applied Materials from $420 to $520 while maintaining a "Buy" rating. This adjustment is primarily based on an optimistic outlook for wafer fabrication equipment (WFE) demand.
The rationale for the target price increase centers on an extended visibility for WFE spending. Citi analysts noted in the report that the visibility for capital expenditure on wafer fab equipment is lengthening, which forms the core basis for the upward revision. Citi now forecasts chip equipment spending to reach $140 billion in 2026, further increasing to $171 billion in 2027, and $193 billion in 2028. These figures are higher than previous estimates of $131 billion, $150 billion, and $155 billion, respectively.
This optimistic forecast is underpinned by robust AI-driven demand. Analysts pointed out that the expansion of AI chips into rack-scale architectures, growth in inference or agent workloads, and the diversification of design starting points are pushing wafer demand significantly beyond current supply levels. Additionally, while it is premature to fully assess Elon Musk's Terafab project, its initial capacity of 100,000 wafers per month could potentially generate over $20 billion in wafer fab equipment revenue in the long term.
Regarding financial performance, Citi expects Applied Materials' silicon-related revenue for calendar year 2027 to grow by 31% year-over-year. The firm has also raised its earnings per share (EPS) forecast by 12% to $15.72. Applied Materials previously reported robust results for the first quarter of fiscal 2026, with revenue of $7.012 billion and net profit of $2.026 billion.
Beyond the growth in WFE spending, AI-related memory demand also presents an upside for Applied Materials. Memory manufacturers are shifting capacity towards high-margin AI applications, including High Bandwidth Memory (HBM) and DDR5, which is driving demand for wafer fabrication equipment. Furthermore, the company's broad product portfolio in areas such as etch, deposition, and advanced packaging allows it to reduce reliance on any single technology cycle. Seaport Research recently also assigned Applied Materials a "Buy" rating with a $500 price target, citing the company as a primary beneficiary of AI semiconductor expenditure.
Applied Materials is scheduled to report its fiscal second-quarter 2026 earnings later this week. The market will be focused on management's latest guidance regarding capital expenditure trends and AI-related orders. As of May 11, Applied Materials' stock closed at $443.62, reflecting a year-to-date increase of 72.62%.
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