Wafer Fab Equipment Sector To Reach $100B By FY25: Analyst Upgrades Applied Materials, Lam Research

Needham analyst Charles Shi is remarkably bullish on the Wafer Fab Equipments (WFE) sector, projecting growth of global wafer starts by 10% in 2024 and 14% in 2025 after a 13% slump in 2023. 

Shi estimates that in 2025, WFE will reach $100 billion in total addressable Market and exceed the $90-95 billion consensus.

Among other companies in the sector, the analyst has a significantly bullish stance on Applied Materials, Inc. AMAT and Lam Research Corporation LRCX. 

Shi thinks the buy-side may be underestimating AMAT's resiliency in 2024 and LRCX's multi-year growth in the new cycle, as memory replaces foundry/logic as the primary WFE growth driver. 

The analyst upgraded AMAT to Buy from Hold, with a price target of $180. 

According to Shi, AMAT might be over-earning in 2023, but the stock price has been depressed by investor expectations, hitting a demand air pocket in C1H24.

In other words, Shi thinks the "final cut," which bulls are hoping for, will arrive soon for AMAT. 

In addition, the analyst expects AMAT's balanced exposure between memory and non-memory WFE to lead to meaningful growth in 2025.

For LRCX, the analyst upgraded to Buy from Hold, with a price target of $800.

Shi thinks Lam Research has been an underperformer in the most recent cycle, but could become an outperformer in the next one.

In particular, Shi believes LRCX will restore its market share to 15%+ by 2025 from just 12% in 2023, setting the stage for outperformance over WFE.

The analyst expects the WFE mix shift toward memory to support strong outperformance for LRCX for the next two years.

Price Action: LRCX shares are trading lower by 1.44% to $645.51 and AMAT down 2.6% to $141.23 on the last check Friday.