BofA Securities analyst Vivek Arya previewed fourth-quarter earnings for semiconductor capital equipment (semicap), where reporting kicks off with ASML Holding (NASDAQ:ASML), Lam Research Corp (NASDAQ:LRCX) on January 29 and KLA Corp (NASDAQ:KLAC) on January 30.
Subsector sentiment has broadly improved year-to-date, but Arya noted multiple nuances further complicated by the fallout from DeepSeek’s possible breakthrough. On one hand, the analyst noted risks like lower AI-related spending if DeepSeek’s R1 translates to lower compute demand for LLMs, capex cuts across memory (Micron Technology, Inc (NASDAQ: MU), SK Hynix, Samsung) and Samsung Foundry and consensus estimates still appear high relative to industry growth expectations.
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However, and more positively, he noted if DeepSeek means inference is more economical to perform at the edge, it could catalyze a PC/smartphone device upgrade cycle, which would support leading-edge Wafer Fab Equipment (WFE), December’s China export restrictions less onerous than expected, Taiwan Semiconductor Manufacturing Co (NYSE:TSM) calendar 2025 capex beat & long-term AI sales CAGR of +40% (positive for complexity drivers), and Intel Corp (NASDAQ:INTC) capex plans intact.
Amidst these moving parts, Arya noted that his $105 billion WFE view for calendar 2025 still holds and that he expects more alignment on these issues with upcoming reports. Given constructive recent data points for leading-edge foundry/logic and HBM spend, Arya raised his price targets for KLA Corp to $840 from $800, Nova Ltd (NASDAQ:NVMI) to $270 from $245, and Camtek Ltd (NASDAQ:CAMT) to $100 from $95, and reiterated his positive thesis for the cohort given tech inflection-led growth and strong free cash flow generation.
Arya also raised China WFE this year to $31.5 billion (now down -15% Y/Y) as local Chinese semicaps gain share. The analyst noted that leading-edge foundry/logic and HBM spending are the most robust and favor exposure there.
Even after the DeepSeek sell-off, semicap stocks have outperformed the sector year-to-date with Nova Ltd (+13%), KLA Corp (+12%), Applied Materials (+10%), Camtek Ltd (+6%), and Lam Research (+5%) all ahead of the SOX (down 3% year-to-date).
Valuation ranging from 19-30 times NTM P/E has been re-rated to catch up with emerging anticipations for WFE growth, but it is still attractive given that $150 billion WFE by calendar 2030-32 implies +7.5% long-term CAGR, tech inflection-led growth accelerates calendar 2025, and superior 20%- 36% FCF margins versus a median of 14% for S&P 500 industrial companies.
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