Meta Platforms made Applied Materials, Lam Research, and KLA Corp. very happy Thurday. Lumentum and Vertiv Holdings were dancing, too.
It was Meta’s plans to manufacture its in-house AI chip in September.
The AI infrastructure companies were bringing down the house.
Lumentum, an optical networking company, rose 11%, placing the stock near the top of the S&P 500.
KLA and Lam Research advanced 3.8% and 6%, respectively. Applied Materials rose 3.2% and Vertiv Holdings added 1.9%.
Meta expects to start work on its AI data-center chip, “Iris,” with custom-built silicon, Reuters reported. Meta declined to comment to Barron’s.
Meta’s decision to move forward with its in-house chip could be a boon for Applied Materials, Lam Research, and KLA. All those companies make wafer fab equipment, which turns raw silicon wafers into microchips.
Last month, Citi estimated the wafer fab market will grow by leaps and bounds in the next two years, based on Citi’s hyperscaler capital spending model. This year, the market is worth about $145 billion, according to Citi. The 2027 projection is $200 billion in 2027 and $250 billion in 2028.
Citi expects hyperscaler spending to increase 84% this year, 56% in 2027, and 38% in 2028. Amazon.com, Microsoft, Alphabet, Meta Platforms, and Oracle are expected to pony up more than $1.1 trillion in 2027, up from $650 billion this year.
Applied Materials, Lam Research, and KLA have all been on a torrid pace this year—each gaining more than 90%—on Wall Street’s optimism that the manufacturers of chip maker equipment will keep seeing robust demand.
Also, Mizuho Securities raised its price targets on Lam Research and Applied Materials to $400 from $380 and to $650 from $540, respectively, and its Outperform rating on both stocks.
TD Cowen hiked its Applied Materials price target to $700 from $525.
Morgan Stanley maintained its $404 price target on Lam Research and KLA and kept its ratings at Overweight.
Besides the growing wafer fab equipment market, Wall Street believes the three companies will benefit from an uptick in NAND demand because of tightening DRAM supply.
DRAM is a type of semiconductor memory used in computers, smartphones, and gaming consoles. NAND refers to machinery used to manufacture, test, or package NAND flash memory, storage technology that holds data without power.
Morgan Stanley analyst Shane Brett wrote that he expects Lam Research to report much better-than-expected fourth-quarter earnings at the end of July and that the company will raise guidance.
Brett thinks Lam Research will revise higher its wafer fab equipment outlook. The analyst added he is looking for updates on customer conversations for fiscal 2027.
The only question will be if the guidance is good enough for Wall Street.
Brett also wrote that the KLA’s long-term outlook is positive, but that the near-term is much more “cautious.”
While the company is expected to beat fourth-quarter earnings expectations, Brett wrote that upside is “already understood” by Wall Street.
“We like KLA’s 2027 story around the broadening of leading-edge logic spenders,” Brett wrote, adding that the stock is already trading on 2028 forecasts.
“We are positive on KLA’s long-term story, but we do not think earnings will provide reasons to become materially more positive,” the Morgan Stanley analyst wrote.
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