Key Takeaways
- Meta is set to commence production of its proprietary AI chip, dubbed ‘Iris,’ starting in September
- Semiconductor equipment giants Applied Materials, Lam Research, and KLA each climbed more than 4% following the announcement
- Lumentum topped S&P 500 gainers with a remarkable 12% surge
- Several Wall Street firms upgraded price targets for Applied Materials and Lam Research in response
- Industry forecasts predict the wafer fab equipment sector will expand from $145 billion in 2024 to $250 billion by 2028
Meta Platforms revealed its intention to launch production of its proprietary AI chip, known as ‘Iris,’ beginning in September. The disclosure triggered a significant rally in semiconductor equipment manufacturers on Thursday.
Applied Materials, Lam Research, and KLAāall major producers of wafer fabrication equipment essential for transforming silicon wafers into functional microchipsāexperienced gains exceeding 4% during the trading session.
Lumentum, which specializes in optical networking technology, surged 12%, ranking among the day’s top performers in the S&P 500 index. Vertiv Holdings climbed 2.8%.
When contacted by Barron’s regarding the initial Reuters report, Meta chose not to provide commentary.
The Connection Between Meta’s Chip Plans and Equipment Suppliers
Applied Materials, Lam Research, and KLA serve as critical vendors in the semiconductor manufacturing ecosystem. When major technology companies like Meta commit to in-house chip production, it generates substantial demand for the specialized equipment these firms provide.
These three stocks have already delivered impressive returns exceeding 90% year-to-date. Market participants have been anticipating sustained strength in chip manufacturing equipment demand.
According to Citi’s analysis, the wafer fab equipment sector is valued at approximately $145 billion in the current year. Projections indicate expansion to $200 billion by 2027 and $250 billion by 2028.
Citi anticipates hyperscaler capital expendituresāfrom technology titans including Meta, Amazon, Microsoft, Alphabet, and Oracleāto increase 84% this year. This consortium is forecast to allocate over $1.1 trillion by 2027, compared to $650 billion currently.
Stifel analysts observed that ‘agentic AI has accelerated the demand trajectory for both memory and logic semiconductors.’ Their forecasts suggest wafer fab equipment investment will reach $192 billion in 2027 and $225 billion in 2028.
Wall Street Analyst Perspectives
Mizuho elevated its price objective for Lam Research to $400 from $380 and for Applied Materials to $650 from $540. Both equities retained their Outperform designation.
TD Cowen increased its Applied Materials price target to $700 from $525.
Morgan Stanley held steady with its $404 price target for both Lam Research and KLA, maintaining an Overweight recommendation on each.
Stifel boosted its price targets for Applied Materials to $650 from $530, for KLA to $270 from $191, and for Lam Research to $425 from $325. All three companies maintain Buy ratings from Stifel.
Morgan Stanley analyst Shane Brett indicated his expectation that Lam Research will deliver fourth-quarter results exceeding consensus estimates when reported in late July, potentially accompanied by upward guidance revisions.
Regarding KLA, Brett expressed optimism about long-term prospects while adopting a more measured near-term stance. He pointed out that market expectations already incorporate a potential earnings beat.
Stifel additionally raised price targets for smaller industry participants Ichor Holdings and Cohu, assigning Buy ratings to both.
The upcoming catalyst for these equities will be Lam Research’s fourth-quarter financial results, scheduled for release at the conclusion of July.
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