Storage giants' expansion boosts the prosperity of the semiconductor equipment cycle! KeyBanc significantly raises the target price for Applied Materials (AMAT.US) and MKS Instruments (MKSI.US).

Wall Street's top investment firm KeyBanc Capital Markets reiterated its "hold" rating on Applied Materials (AMAT.US) and MKS Instruments (MKSI.US) on Monday, and raised Applied Materials' target price from $550 to $750 (an increase of 36%) and MKS Instruments' target price from $360 to $475 (a 32% increase). For Applied Materials, KeyBanc analysts stated, "We continue to give Applied Materials a 'hold' rating because of its relatively attractive valuation and its overall leading position in the semiconductor equipment sector." "For these reasons, we are raising Applied Materials' target price from $550 to $750, which corresponds to a price-to-earnings ratio of about 31 times our updated 2028 earnings per share (EPS) forecast." KeyBanc provided similar reasons for raising MKS Instruments' target price. Analysts stated, "We continue to give MKS Instruments a 'hold' rating and reiterate that it remains one of our top picks in the semiconductor equipment sector. It has a discounted valuation and unique growth opportunities in areas like advanced process semiconductor, NAND upgrades, and advanced packaging. Additionally, the company's continued deleveraging process is expected to accelerate earnings per share growth." The analyst added, "For these reasons, we are raising MKS Instruments' target price from $360 to $475, which corresponds to a price-to-earnings ratio of about 29 times our 2028 fiscal year earnings per share forecast." With the ongoing shortage of storage chips, chip manufacturers are driving an expansion wave of production capacity that will benefit companies in the industry chain, including semiconductor equipment. On Monday, the South Korean government announced plans to build four chip factories in the southwest, with an investment of around 80 trillion won. Over the next 15 years, they will invest at least 30 trillion won in next-generation storage, edge artificial intelligence, national defense, and other chip areas. Samsung Electronics and SK Hynix also announced massive investment plans, with the two major storage companies expected to invest over 100 trillion won in the next decade. Meanwhile, Micron Technology, Inc. forecasts that capital expenditures in the fourth quarter of fiscal year 2026 will be around $10 billion, with annual capital expenditures of about $27 billion, and expects capital expenditures for each quarter of fiscal year 2027 to be higher than the fourth quarter of fiscal year 2026. For semiconductor equipment manufacturers, expanding storage chip production involves not just building more production lines, but also investing heavily in new clean rooms, as well as strong demand for lithography, etching, deposition, measurement, material engineering, and advanced packaging equipment driven by HBM, advanced DRAM, enterprise SSDs, 3D NAND, and advanced packaging needs. A recent research report from Wall Street financial giant Wells Fargo & Company shows that the long-term bull market logic of the semiconductor equipment sector is becoming increasingly robust, benefiting from the expansion of 3nm, 2nm, and even more advanced chip manufacturing capacities, as well as accelerated investments in CoWoS/3D advanced packaging manufacturing capacities and DRAM/NAND storage chip capacities. Wells Fargo & Company states that global semiconductor equipment manufacturers like ASML Holding NV ADR, Applied Materials, Lam Research, and KLA Corporation are expected to continue their positive performance in the second quarter, and raises its expectations for overall equipment expenditures for semiconductor plants in 2027 from around $180 billion to about $190 billion. Another Wall Street giant, Citigroup, expects the global wafer fabrication equipment (WFE) market to grow from about $145 billion in 2026 to $200 billion in 2027 and $250 billion in 2028 in an optimistic scenario. The firm significantly raised its target stock price for Applied Materials from $550 to $710, Lam Research's target price from $315 to $450, and KLA's target price from $206 to $290.