Wells Fargo (WFC) upgraded KLA (KLAC) and Lam Research (LRCX) to Buy today because it believes that the market for chipmaking equipment is likely to grow faster in the coming years. At the same time, the bank kept Applied Materials (AMAT) as its top pick in the group due to its strong position across many parts of the semiconductor industry. Unsurprisingly, investors welcomed the news and pushed all three stocks to all-time highs in today’s trading.
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According to five-star Wells Fargo analyst Aaron Rakers and his team, demand for both advanced logic chips and memory chips is tightening, which supports higher spending on wafer fabrication equipment (WFE). Even though semiconductor equipment stocks have already done well this year, Rakers believes that there is still room for more gains as supply and demand continue to move into a more balanced state. Because of this, Wells Fargo raised its WFE spending estimates by about 10% and increased its forecasts for 2026 and 2027. It also lifted its price targets to $1,600 for KLA and $250 for Lam Research.
When looking more closely at each company, KLA’s upgrade is tied to growing demand for 2-nanometer chips, which require more inspection and testing as manufacturers move to these advanced designs. That extra complexity means that KLA’s tools should remain in high demand through 2026. Meanwhile, Lam Research is expected to benefit from tightening conditions in the memory market, especially in NAND, which could push chipmakers to spend more to upgrade existing factories over the next two years. Supporting this view, Stifel said earlier this week that WFE spending could grow 10% to 15% in 2026.
Which Chip Stock Is the Better Buy?
Overall, analysts think that all three chip stocks mentioned above are already trading near fair value despite their Strong Buy consensus ratings. Nevertheless, LRCX’s average price target of $215.29 per share implies the least downside risk.
