Chip Equipment Stocks Gain Traction as AI Demand, TSMC's Capex, and Semiconductor Expansion Drive Valuations

Semiconductor equipment companies ASML Holding ASML, Applied Materials, Inc AMAT, KLA Corp KLAC, and Lam Research Corp LRCX became significant beneficiaries of the artificial intelligence boom, bearing testimony to the interconnectivity of the industry ecosystem.

Recently, CNBC’s Jim Cramer flagged how the capital equipment companies got a boost from the Taiwan Semiconductor Manufacturing Co’s TSM upbeat quarterly print and guidance.

It has committed $38 billion—$42 billion in fiscal 2025 capex versus the actual fiscal 2024 capex of $29.8 billion, including a boost of capex on equipment triggering a rally in its supplier stocks, including Applied Materials, Lam Research, and KLA, Cramer inferred.

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The contract chipmaker reported fourth-quarter revenue of $26.88 billion, up by 39%, topping the consensus of $26.28 billion. The company expects first-quarter revenue of $25.0 billion—$25.8 billion, compared to the $24.97 billion consensus.

Cramer correlated advanced process technologies with equipment catering to Nvidia Corp’s NVDA GPUs and other accelerators.

ASML Holding, a $292 billion company, trades at a PE multiple of 37.2x versus Applied Materials’ ($147 billion market cap) 18.8x, Lam Research’s ($105 billion market cap) 21.5x and KLA’s ($101 billion market cap) 24.2x.

The cash-rich chip equipment makers have consistently paid dividends, with a dividend yield of ~1%.

ASML Holdings’ gross margin is 51.7%, compared to Applied Materials’ 47.3%, KLA’s 60.30%, and Lam Research’s 47.4%.

Applied Materials analysts had flagged the impact of intensifying geopolitical tensions between the U.S. and China, considering the company’s significant exposure to the country.

The U.S. is already ASML Holding’s largest market, overtaking China in the fourth quarter. Applied Materials and Lam Research have contacted non-Chinese suppliers to comply with regulations.

Goldman Sachs analyst Toshiya Hari expects Lam Research to outperform its immediate peers in 2025.

In addition to a quarterly recovery in the overall Wafer Fab Equipment market, he expects distinctive drivers like the adoption of Gate-All-Around transistors in leading-edge Foundry or Logic and the resumption of technology transitions in 3D NAND to support revenue growth that exceeds the overall WFE market.

Global sales of total semiconductor manufacturing equipment by original equipment manufacturers (OEMs) will likely reach $113 billion in 2024, up by 6.5%, according to SEMI. Semiconductor manufacturing equipment growth will likely reach $121 billion in 2025 and $139 billion in 2026.

Rising demand for advanced chips in devices like smartphones, PCs, and IoT gadgets fueled the growth, according to SNS Insider.

Countries have also poured in money to stay ahead in the semiconductor race. Major countries, including the U.S., Japan, China, and Europe, initiated the U.S. CHIPS and Science Act, Japan’s ¥1 trillion R&D investment, China’s Made in China 2025 strategy, and the European Chips Act to boost local semiconductor production.

According to SEMI, China, Taiwan, and Korea will likely remain the top three destinations for equipment spending through 2026.

MSCI World Semiconductors & Semiconductor Equipment Index yielded a 37% return in the last 12 months. It trades at a PE multiple of 48.7x. S&P Semiconductors Select Industry Index yielded over 19% in the same time frame.

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