Key Takeaways
- Meta is scheduled to commence production of its proprietary AI chip, dubbed “Iris,” this September
- Shares of Applied Materials, Lam Research, and KLA each climbed more than 4% following the announcement
- Lumentum topped S&P 500 performers with an impressive 12% surge
- Wall Street analysts upgraded price targets for Applied Materials and Lam Research in response to the development
- Industry forecasts predict wafer fab equipment market expansion from $145B in 2024 to $250B by 2028
Meta Platforms revealed its intention to commence production of “Iris,” its proprietary artificial intelligence chip, starting in September. This announcement triggered a significant rally in semiconductor equipment manufacturers on Thursday.
Applied Materials, Lam Research, and KLA—all major producers of wafer fabrication equipment used to transform silicon wafers into functional microchips—experienced gains exceeding 4% during the trading session.
Lumentum, specializing in optical networking solutions, surged 12%, positioning itself among the S&P 500’s top performers. Vertiv Holdings also advanced 2.8%.
Meta representatives chose not to provide commentary to Barron’s regarding the initial Reuters report.
The Connection Between Meta’s Chip Plans and Equipment Manufacturers
Applied Materials, Lam Research, and KLA serve as critical suppliers throughout the semiconductor fabrication process. When major technology companies like Meta commit to in-house chip production, it generates substantial demand for the specialized equipment these manufacturers produce.
These three stocks have already delivered impressive returns exceeding 90% year-to-date. Financial institutions have been anticipating sustained strength in chip-making equipment demand.
Citi’s analysis values the current wafer fab equipment market at approximately $145 billion. Their projections indicate growth to $200 billion by 2027, ultimately reaching $250 billion in 2028.
Citi anticipates hyperscaler capital expenditures—from technology giants including Meta, Amazon, Microsoft, Alphabet, and Oracle—will increase 84% this year. This cohort is expected to allocate over $1.1 trillion by 2027, compared to $650 billion currently.
Stifel’s research team noted that “agentic AI has steepened the demand curve for memory and logic chips.” Their estimates place wafer fab equipment spending at $192 billion for 2027 and $225 billion for 2028.
Wall Street’s Updated Outlook
Mizuho elevated its price objective for Lam Research to $400 from $380, while increasing Applied Materials’ target to $650 from $540. Both securities retained Outperform ratings.
TD Cowen boosted Applied Materials’ price target significantly to $700 from $525.
Morgan Stanley held its $404 price target for both Lam Research and KLA steady, maintaining Overweight ratings on each position.
Stifel increased price targets for Applied Materials to $650 from $530, KLA to $270 from $191, and Lam Research to $425 from $325. All three maintain Buy ratings from Stifel.
Morgan Stanley analyst Shane Brett anticipates Lam Research will deliver fourth-quarter results exceeding expectations when reported late July, with probable upward guidance revisions.
Regarding KLA, Brett expressed optimism about long-term prospects while adopting a more measured near-term perspective. He emphasized that market expectations already incorporate potential earnings outperformance.
Stifel additionally raised targets on smaller sector participants Ichor Holdings and Cohu, assigning Buy ratings to both companies.
The next significant catalyst for these stocks will arrive with Lam Research’s fourth-quarter earnings announcement, anticipated at July’s conclusion.
