Why Morgan Stanley Is More Optimistic About Semiconductor Equipment Sales
Morgan Stanley hiked its 2026 chip equipment sales forecast to +10% (from +5%) because memory markets are improving. They upgraded Applied Materials and Lam Research, but lowered KLA Corp. due to high valuation despite strong growth.
- A Bigger Forecast for Chip Equipment Sales
- Morgan Stanley significantly increased its prediction for 2026 wafer fab equipment (WFE) sales growth.
- The firm now expects WFE sales to be up 10% year-over-year, which is double the prior forecast of 5% growth.
- Memory Markets Are Driving the Change
- This upgraded forecast is attributed "almost entirely" to improvements in the memory chip markets.
- Morgan Stanley stated that memory end markets "have turned for the better," noting they were previously wrong about this sector. The firm's new base case for memory is now close to what they previously considered their "bull case".
- Higher Earnings Estimates
- Analysts revised up their calendar year 2026 earnings per share (EPS) estimates for major equipment companies: Applied Materials (AMAT), KLA Corp. (KLAC), and Lam Research (LRCX).
- These EPS estimates were increased by 5%–9%.
- Morgan Stanley's updated estimates are now the highest predictions among analysts (Street high) for all three companies.
- Changes in Stock Ratings
- Applied Materials: Upgraded to Overweight (from Equal Weight) with a higher price target of $209 (from $172). The firm sees the risk/reward for AMAT as "skewed to the upside," noting its strong leverage to new DRAM facility construction ("greenfield DRAM").
- Lam Research: Upgraded to Equal Weight (from Underweight) with a price target of $125.
- KLA Corp.: Downgraded to Equal Weight (from Overweight) despite a raised price target of $1,093 (up from $928). The downgrade occurred because the firm sees relative outperformance as "hard to call" due to KLA’s 30% valuation premium compared to Applied Materials and Lam Research.