Key Highlights
- Meta is set to launch production of its proprietary AI processor, dubbed “Iris,” this September
- Leading equipment manufacturers Applied Materials, Lam Research, and KLA each climbed more than 4% following the announcement
- Lumentum delivered the strongest S&P 500 performance with a 12% surge
- Wall Street analysts increased their price projections for Applied Materials and Lam Research in response
- Industry forecasts predict the wafer fabrication equipment sector will expand from $145 billion to $250 billion between now and 2028
Meta Platforms revealed its intention to commence production of its proprietary AI processor, known as “Iris,” starting in September. The announcement triggered significant upward momentum in semiconductor equipment manufacturers on Thursday.
Applied Materials, Lam Research, and KLAâall major producers of wafer fabrication machinery used to transform silicon wafers into functional microchipsâexperienced gains exceeding 4% during Thursday’s trading session.
Lumentum, which specializes in optical networking solutions, jumped 12%, positioning it among the S&P 500’s top performers. Vertiv Holdings climbed 2.8%.
When contacted by Barron’s regarding the initial Reuters report, Meta representatives declined to provide commentary.
The Equipment Makers’ Opportunity
Applied Materials, Lam Research, and KLA serve as essential suppliers to semiconductor production facilities. When major technology companies like Meta choose to develop proprietary chips internally, it generates substantial demand for the specialized machinery these manufacturers provide.
These three stocks have already delivered impressive returns exceeding 90% year-to-date. Market participants have been anticipating sustained strength in semiconductor manufacturing equipment demand.
According to Citi’s analysis, the wafer fabrication equipment market currently represents approximately $145 billion annually. Their projections indicate expansion to $200 billion by 2027 and $250 billion by 2028.
Citi forecasts that capital expenditures from hyperscale cloud providersâincluding Meta, Amazon, Microsoft, Alphabet, and Oracleâwill surge 84% this year. This cohort is anticipated to invest 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 fabrication equipment spending at $192 billion in 2027 and $225 billion in 2028.
Wall Street’s Response
Mizuho Securities elevated its price objective for Lam Research from $380 to $400 and for Applied Materials from $540 to $650. Both companies retained their Outperform ratings.
TD Cowen increased its Applied Materials target from $525 to $700.
Morgan Stanley held steady with its $404 price target for both Lam Research and KLA, maintaining Overweight ratings on each.
Stifel lifted its price targets on Applied Materials to $650 from $530, on KLA to $270 from $191, and on Lam Research to $425 from $325. All three maintain Buy ratings from Stifel.
Morgan Stanley’s Shane Brett indicated he anticipates Lam Research will deliver fourth-quarter results exceeding consensus expectations when they report in late July, likely accompanied by upward guidance revisions.
Regarding KLA, Brett expressed optimism about long-term prospects while adopting a more measured near-term stance. He observed that market expectations already incorporate potential earnings outperformance.
Stifel additionally raised price targets on smaller sector participants Ichor Holdings and Cohu, assigning Buy ratings to both.
Investors will focus next on Lam Research’s fourth-quarter earnings announcement, scheduled for late July.
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