By Emily Dattilo

It's time to bet on Applied Materials and Lam Research, KeyBanc Capital Markets argued as the firm upgraded the pair of chipmaking equipment companies.

After attending the 2025 Industry Strategy Symposium, analysts led by Steve Barger raised their rating on Applied Materials to Overweight from Sector Weight and established a price target on the stock of $225. In the same report, analysts upgraded shares of Lam Research to Overweight from Sector Weight and assigned a price target of $95.

Applied Materials stock rose 1.9% to $190.09, while Lam Research shares increased 2.3% to $81.01 in premarket trading. A day prior, both stocks rose solidly on the heels of a strong quarterly report from Taiwan Semiconductor Manufacturing.

"We think AMAT's broad diversification, focus on novel materials, and leading market share in technologies enabling node transitions, improved chip efficiency, and advanced packaging position it well for an AI-driven growth cycle," analysts wrote, adding that though an inflection point in mobile and servers isn't visible yet a recovery in those markets should prompt further upside for revenue and earnings per share.

Applied Materials shares have fallen about 27% since early July, compared to the 6% jump by the S&P 500, which better aligns the valuation with current conditions, the analysts continued. The team acknowledged some of its bullishness is based on an anticipated recovery but advise that long-term investors snap up shares before that path becomes clearer.

The story for Lam Research is a bit different, KeyBanc said.

Analysts believe the company's strategy on technology improvement for memory markets sets it up well for transitions within the sector. They think the flash memory market will mainly invest in tool upgrades this year, which would mostly benefit Lam Research because the company has been in the sector for a while.

"Additionally, we think the rapid development of AI-related devices will continue to drive more (and better) HBM [high bandwidth memory] into the marketplace," analysts wrote. They believe as semiconductor businesses grow increasingly niche, Lam's tools for TSV formation -- vertical wires that connect stacked chips -- will be important for technological advancement, leading to sales growth and better margins.

Write to Emily Dattilo at emily.dattilo@dowjones.com

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January 17, 2025 08:13 ET (13:13 GMT)

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