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Investing.com -- Morgan Stanley has reshuffled its ratings on U.S. semiconductor capital equipment stocks, revising its industry outlook alongside an upgraded forecast for wafer fab equipment (WFE) spending in 2026.
The bank now expects WFE revenue to grow 10% that year to $128 billion, up from a prior 5% growth forecast, with memory investment driving most of the upside. The revision is “almost entirely in memory,” with DRAM and NAND forecasts raised, bringing the base case close to Morgan Stanley’s bull case.
Applied Materials was upgraded to Overweight, with Morgan Stanley citing its high exposure to DRAM spending and potential benefits from new wafer additions.
The Wall Street firm lifted its 2026 EPS estimate for Applied to $10.45 from $9.58 and raised its price target to $209 from $172, applying a higher earnings multiple.
“With a 3:1 bull:bear skew, the most leverage to greenfield DRAM in our coverage, and our view that China, ICAPS, and leading edge logic are derisked, we think risk reward is skewed to the upside,” analysts led by Shane Brett wrote.
Lam Research was also lifted to Equal-weight from Underweight as analysts acknowledged that memory markets have improved faster than they expected.
The team raised its EPS forecast for 2026 to $5.43 and its target price to $125.
“Memory end markets have turned for the better and we were wrong here and apologize,” the note said.
Still, with Lam shares trading at 23 times projected 2026 earnings, analysts argued that further upside would require revenue closer to $24 billion and EPS near $6.
KLA, meanwhile, was cut to Equal-weight from Overweight. The analysts noted that the company’s fundamentals remain strong, supported by demand from TSMC, DRAM, and advanced packaging.
But they warned that valuation has become stretched. Morgan Stanley raised its 2026 EPS estimate for KLA to $39.03 from $37.11 and its price target to $1,093 from $928, but argue, “at a 30% valuation premium vs AMAT/LAM, we find relative outperformance hard to call.”
Speaking more broadly, the analysts see risk skewed to the upside for memory capital expenditure in 2026 and 2027, with stronger DRAM pricing already feeding into capex plans.