Investing.com -- Needham & Company analysts adjustmented their semiconductor capital equipment outlook in a note Monday, upgrading KLA Corp to Buy and naming Onto Innovation (NYSE:ONTO) as a top pick for 2025.
The analysts revised their 2025 wafer fab equipment (WFE) estimate from $110 billion to $100 billion, citing deteriorating industry fundamentals outside of AI and the impact of recent U.S. export controls.
They believe 2025 will likely mark the peak of this WFE cycle, with a downturn expected in the second half of 2026. Consequently, they downgraded four stocks—BESI, COHU, FORM, and ICHR—to Hold, as these companies’ high valuations are not supported by their current business fundamentals.
KLA Corp has been upgraded to Buy due to its proactive response to China-related export controls and a more conservative outlook on China’s WFE market.
"KLAC is now the one and only semicap company that has a clean slate when it comes to China outlook," Needham analysts stated.
They highlighted KLAC’s service business growth and technology upgrades, which they believe will provide stable execution in a challenging WFE environment.
Onto Innovation has been added to the Needham Conviction List and named the top pick for 2025.
The analysts emphasized ONTO’s strong exposure to AI-related growth, particularly in advanced packaging technologies like TSMC CoWoS and HBM.
ONTO’s reduced exposure to China is seen as a positive, given the declining WFE in the region. Needham believes ONTO is well-positioned to capitalize on the AI cycle and expects it to outperform in 2025 and 2026.