ASML, Applied Materials, others in focus as chip equipment spending should rise: RJ – Seeking Alpha
Mykola Pokhodzhay
Semiconductor equipment stocks were in focus on Tuesday as Raymond James said it sees spending on equipment rising by at least single digits in 2025 and 20206, driven by a multitude of factors, including generative artificial intelligence and geopolitics.
“While valuations are near multi-year highs, we continue to see favorable risk/reward and reiterate our positive stance on the group,” analyst Srini Pajjuri wrote in an investor note. Pajjuri pointed to Micron’s (MU) recent increase in capital spending as a sign of things to come, with upward revisions likely coming for memory and advanced logic capex.
And while there is a risk of a slowdown in China, that risk is likely to be “modest” and already reflected in models, Pajjuri said.
The research firm raised its price target on ASML to $1,300 from $1,100 and reiterated its Strong Buy rating, noting that the key debate amongst investors is quarterly bookings.
“While price negotiations with [Taiwan Semiconductor (TSM)] appear to be the reason for recent order weakness, we expect any additional delays to be temporary given improving end demand, Gen AI megatrend, and intensifying competition in Foundry space,” Pajjuri wrote. “As such, we view any pullback on near term order weakness as an opportunity.”
The firm also raised its price target on Applied Materials to $275 from $235 and reiterated its Outperform rating.
The company has already de-risked its exposure to China, with sales from the region going from roughly 43% in the fiscal second-quarter to roughly 30% by the end of the year, Pajjuri said. Additionally, the company is benefiting from the increase in spending for high bandwidth memory and advanced packaging related to generative AI. Separately, its leadership position in gate-all-around and back-side power should create “multi-year secular tailwinds,” with gate-all-around revenue expected to more than double in 2025, Pajjuri said.
Raymond James also increased its price target on Lam Research, moving to $1,250 from $1,060 and reiterated its Outperform rating.
Like its competitors, Lam Research is benefiting from growth in high-bandwidth memory and has made “solid” progress in the foundry and logic space, Pajjuri said.
“Looking ahead, we believe TSM’s N2 node offers a sizable opportunity for the company. In Memory, LRCX is benefiting from its dominant position in etch/plating tools for HBM and we see further acceleration in 2025. We are also optimistic that NAND utilization improvements will lead to WFE recovery in 2025.”
Raymond James also increased its price target on KLA Corp., moving to $975 from $875 while reiteraterating its Oupterform rating.
“KLAC’s top-line outpaced WFE during the past five years, and we expect the trend to continue driven by secular growth in process control intensity,” Pajjuri wrote. “Advanced foundry & logic is starting to improve and 2 nm node is a key upcoming driver. During our recent meetings, management reiterated its prior view that China revenue will be relatively flat in 2H24 and even in 2025 likely due to its dominant share in infrastructure (wafer houses & mask houses).”
