SeventyFour/iStock via Getty Images
KLA Corp. (NASDAQ:KLAC) and Applied Materials (NASDAQ:AMAT) are Wells Fargo’s favorite semiconductor equipment stocks, even as the broader sector hits all-time highs, resulting in another “tough” earnings set up.
“We [continue] to prefer KLA & AMAT; high bookings expects leave us to wait for post EPS to add to ASML (NASDAQ:ASML),” analysts led Joe Quatrochi wrote in an investor note.
The analysts boosted their wafer fab equipment spending for 2025 and 2026, citing the continued recovery in demand, led by foundry and leading edge, along with dynamic random access memory. The firm now expects chip equipment spending to hit $118B in 2025 and $123B in 2026, up from prior expectations of $90B and $120, respectively.
Delving a little deeper, KLA Corp. should benefit as investor sentiment has improved “significantly” after the company posted first-quarter results, due in large part to increased confidence about opportunities in 2025 for 2 nanometer chips.
“With implied bookings down q/q and y/y in C1Q24, improving order activity & 2025 visibility will be [the] key driver of shares,” the analysts wrote. “As we think about 2nm [opportunities] ramping in 2025 & 2026, we think KLA Street est. reflecting F/L revenue flat y/y in C2026 is conservative.”
Applied Materials has also benefited from better investor sentiment, as investors focus on the company’s “strong” competitive position to benefit from continued investments in high-bandwidth memory. Additionally, Applied Materials should keep gaining share in leading edge foundry and logic amid the move to 2 nanometers, while trailing edge has held up “better than feared.”
On the other hand, ASML, which makes extreme ultraviolet lithography systems, offers a “tricky setup” going into its second-quarter earnings result.
“While we continue to view a re-acceleration in EUV bookings as a matter of when (not if), we think expectations could again be too high for 2Q24 (buyside bogey in €6B-€8B range w/ €4B-€6B EUV?) vs. our view of ~€5B. That said, if 2Q24 orders again miss expectations, we think any share weakness will be bought by long onlys as it sets up a positive 2HC2024 catalyst path,” the analysts wrote.
The firm also weighed in on Lam Research (NASDAQ:LRCX) and said that sentiment is more negative going into second-quarter earnings as the recovery in NAND spending is playing out slowly.