MW These overlooked stocks are a backdoor way to play the AI chip boom
By Britney Nguyen
Materials suppliers Entegris and Qnity aren't household names, but they benefit from both the AI frenzy and a broader chip-sector recovery
Companies supplying materials for chip manufacturing are poised to benefit from analog-chip recovery and the growing need for advanced chips.
Investors looking for ways to play the artificial-intelligence boom beyond high-profile semiconductor stocks could find opportunities among materials providers.
Companies like Entegris $(ENTG)$ and Qnity Electronics $(Q)$ - which make things ranging from specialty chemicals to wafer transport equipment that are required for chip manufacturing - have a few big factors working in their favor. For one, a recovery in analog chips is coinciding with accelerating demand for logic and memory chips that are enabling the deployment of AI. Also, their stocks haven't seen the same level of price appreciation as chip stocks that have become household names.
For these materials providers, the analog opportunity is perhaps the most clear-cut. Analog chips, which are used in automobiles, appliances and other consumer electronics, are staging a comeback after a multiyear downcycle.
"That's really what's going to be the biggest needle mover for a material stock," Melissa Weathers, an analyst at Deutsche Bank, told MarketWatch.
Industry players like Texas Instruments $(TXN)$ have been increasingly talking up this recovery, and the company offered a hopeful sign earlier this week when its forecast implied sequential revenue growth between the fourth and first quarters. That's something that Cantor Fitzgerald analyst Matthew Prisco said hasn't happened in 16 years.
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Both Qnity and Entegris make chemical mechanical planarization, or CMP, pads, which are used for flattening and polishing wafers, as well as slurry, which is a specialized liquid used in the process to remove material from wafer surfaces. Entegris's products are used more on the front end of wafer manufacturing, which is when integrated circuits are built into silicon wafers, while Qnity's offerings are more for the back end, when the silicon wafers are cut into individual dies and packaged into chips.
Qnity also makes flexible laminates, which allow circuits to bend and fit on printed circuit boards. Other materials players include Element Solutions (ESI), which makes materials for connecting chips onto circuit boards, and Solstice Advanced Materials $(SOLS)$, which makes sputtering targets that are used to create thin lines of film on silicon wafers. But analysts say they're not pure plays the way Qnity and Entegris are.
The AI opportunity
Perhaps the biggest way these materials companies are playing into AI is through work on the memory side, Oppenheimer analyst Edward Yang told MarketWatch. The memory market is red-hot as AI models get larger and more complex, thereby requiring more memory and storage for processing.
The companies are also becoming an increasingly integral part of the effort to develop more advanced chips that enable improvements in AI.
AI chips are made on leading-edge nodes that need highly specific materials, meaning the volume growth for high-end chemicals and materials has been accelerating, Aleksey Yefremov, an analyst at KeyBanc, told MarketWatch.
"AI is really pushing the envelope for performance and reliability," Yang said, adding that some chip customers are planning around materials that haven't even been invented yet. Add on top of that the memory supercycle, and Yang said he can see what has made "investors so excited about these stocks."
Shares of Entegris are up almost 32% so far this year, while Qnity, which was spun out of DuPont de Nemours (DD) in November, is up more than 13% in 2026. Shares of Solstice, which was spun off from Honeywell $(HON)$ in October, and Element Solutions are also up this year - ahead 25% and 12%, respectively.
But over a longer span, the two with more extensive trading histories haven't kept pace with the semiconductor sector. Entegris shares have risen 16% over the past 12 months and Element Solutions shares have risen 13%, while the PHLX Semiconductor Index SOX has climbed 59%.
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One of Qnity's most important products is its advanced thermal interface materials, or TIMs, offering that helps keep chips cool in servers, Yang noted. Keeping racks from overheating is a key issue for semiconductor companies, and one that reportedly forced Nvidia to delay the ramp of its Blackwell AI platform in late 2024.
This need for high-quality materials is helping companies like Qnity and Entegris go from being standard commodity suppliers to development partners, Seth Goldstein, an analyst at Morningstar, told MarketWatch.
By co-developing products with a partner like Taiwan Semiconductor Manufacturing Company $(TSM)$ (TW:2330), the world's largest producer of advanced chips, they can become preferred suppliers for certain equipment, Goldstein said, keeping them relevant throughout the lifecycle of a new chip.
Chip makers like TSMC are accelerating investments in leading-edge fabs, meaning the technology's development is speeding up, Yefremov said. Whenever this transition happens, companies can sell more expensive materials, he said, "because in order to enable more advanced semiconductor nodes, you often need to come up with completely new materials."
The rise of advanced packaging technology has benefitted Qnity and Element Solutions, Yefremov said. Advanced packaging connects chips, such as logic and memory chips, in more efficient ways, increasing speed, efficiency and density. As that has happened, interconnect material has gotten more profitable, he added, because it is required for this technology.
The advanced packaging business for Qnity and Element Solutions grew 20% in 2025, Yefremov noted, and he sees that number accelerating.
"That's a key technology for semiconductor innovation going forward, and these companies have the core enabling materials here," he said.
Not without risk
Deutsche Bank's Weathers suggested investors temper their enthusiasm around the AI opportunity. The volume of advanced chips for AI make up a small share of the broader semiconductor market, she told MarketWatch.
Even with the memory market's newfound momentum, chip fabs are at capacity, she explained, meaning there will be limited opportunities to increase wafer production until more clean-room space is added - and that isn't expected to happen until at least 2027.
At a high level, Weathers said near-term growth for materials players will be tied more to this cyclical recovery in analog chips.
That cyclicality is another thing investors should understand. Both businesses are economically sensitive, Yang said, while Yefremov noted that China's growing AI ambitions present another risk.
China mostly competes at the lower end of the market for materials, as it hasn't quite cracked the code on producing higher-end materials to compete with the likes of Entegris and Qnity, Yefremov said. But with the country investing in developing equipment and materials for advanced semiconductors, China could become a competitive threat if it's successful, he added.
However, that's more of a longer-term issue for investors to keep in mind, Yefremov said. "It's a complex technology problem, and success is very far from guaranteed - there's a reason there's only so many suppliers in these markets," he said.
Read on: This could be a better - and safer - way into the AI trade in 2026
-Britney Nguyen
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January 31, 2026 08:30 ET (13:30 GMT)
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