In this article, we will take a look at the 10 best semiconductor equipment stocks to buy now.

“This Is Probably The First Year Of What Could Be A 5 Or 10 Year Investment Cycle”

On April 19 BofA Securities’ senior semiconductor analyst, Vivek Arya, appeared in an interview on CNBC where he talked about the semiconductor space and how advancements in artificial intelligence have the potential to play a key role in driving its growth. Arya noted that the adoption of AI applications is still in an early stage and 2023 “is probably the first year of what could be a 5 or 10 year investment cycle”. Arya noted that managing AI workloads requires high levels of computational power and resources. He talked about how NVIDIA Corporation (NASDAQ:NVDA) is now competing with cloud services providers such as Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG) for chip market share.

Vivek Arya noted that though NVIDIA Corporation (NASDAQ:NVDA) is at the forefront of the AI chip trade, Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOG) also have their own AI chips, Inferentia and TPU respectively.

Amazon’s (NASDAQ:AMZN) AWS Inferentia offers native support for PyTorch and Tensorflow, two of the most widely used deep learning frameworks for building production systems. Alphabet Inc. (NASDAQ:GOOG) has the Tensor Processing Unit (TPU), an AI accelerator for deep learning applications. Moreover, Microsoft Corporation (NASDAQ:MSFT) is also developing its own AI chip. On April 18, Reuters reported that Microsoft Corporation (NASDAQ:MSFT) has been working on its AI chip since 2019 and it is now in a testing phase.

Vivek Arya talked about chip pricing and how the increasing adoption of AI by cloud services providers is calling for more high performance semiconductors. He said that though NVIDIA’s (NASDAQ:NVDA) new chips are up to 3 times more expensive than the company’s previous generation products, they are also offering higher performance and increased energy efficiency. Arya further spoke about the success of ChatGPT and how it has “created this cycle of adoption that is just kicking off”. Here is what Vivek Arya said:

“It’s not just the top three or four hyperscalers, you know, remember each of them used to be a startup at one point and they displaced the incumbent. And now what we have in the valley is three or four hundred startup companies that are trying to develop new and innovative applications with this new technology. So when they do that they need compute power that is available on the cloud and that is where the need for GPUs, we think, can grow even faster than what we had anticipated last year.”

As AI adoption increases, the need for more sophisticated and powerful semiconductors is expected to grow. Moreover, as cloud services providers start making in-house chips for high performance computing applications, the semiconductor equipment industry is poised to exhibit strong growth. Some of the best semiconductor equipment stocks to buy now include ASML Holding N.V. (NASDAQ:ASML), Lam Research Corporation (NASDAQ:LRCX), and Applied Materials, Inc. (NASDAQ:AMAT). Let’s now discuss these stocks, among others, in detail below.

Our Methodology

We screened for semiconductor equipment stocks using Yahoo Finance’s stock screener. Each stock’s hedge fund sentiment was then sourced from Insider Monkey’s database of 900 elite money managers. We narrowed down our selection to stocks that were the most popular among hedge funds and ranked them in ascending order of the number of hedge funds that have stakes in them.

Best Semiconductor Equipment Stocks to Buy

10. indie Semiconductor, Inc. (NASDAQ:INDI)

Number of Hedge Fund Holders: 23

On February 17, Deutsche Bank analyst Ross Seymore raised his price target on indie Semiconductor, Inc. (NASDAQ:INDI) to $15 from $10 and maintained a Buy rating on the shares.

Shares of indie Semiconductor, Inc. (NASDAQ:INDI) have surged 43.52% since the beginning of 2023, as of April 26. The stock is placed tenth among the best semiconductor equipment stocks to buy now.

23 hedge funds held stakes in indie Semiconductor, Inc. (NASDAQ:INDI) at the close of the fourth quarter of 2022. The total value of these stakes amounted to $109.4 million. As of December 31, Soros Fund Management is the top investor in the company and has a position worth $51 million.

Baron Funds made the following comment about indie Semiconductor, Inc. (NASDAQ:INDI) in its Q4 2022 investor letter:

“indie Semiconductor, Inc. (NASDAQ:INDI) is a fabless designer, developer, and marketer of automotive semiconductors for advanced driver assistance systems and connected car, user experience, and electrification applications. We added to our position in the quarter, taking advantage of a sell-off in the stock when the company announced a capital raise to fund future acquisitions. We continue to believe that the automotive semiconductor vertical is attractive as silicon content in cars increases over time and that indie remains on track to deliver profitability by the end of this year while sustaining its rapid pace of growth. Given their track record, we also trust indie’s management to deploy its recently raised capital into an accretive acquisition that enhances the company’s long-term growth prospects.”

9. Axcelis Technologies Inc. (NASDAQ:ACLS) 

Number of Hedge Fund Holders: 24

Axcelis Technologies Inc. (NASDAQ:ACLS) is involved in the design, manufacture, and servicing of capital equipment for the semiconductor industry. Shares of Axcelis Technologies Inc. (NASDAQ:ACLS) have gone up by 104.16% over the past 6 months, as of April 26.

On February 27, Loop Capital analyst Scott Graham took coverage of Axcelis Technologies Inc. (NASDAQ:ACLS) with a Buy rating and a $150 price target. The stock is one of the best semiconductor equipment stocks to buy now.

24 hedge funds disclosed having stakes in Axcelis Technologies Inc. (NASDAQ:ACLS) at the end of Q4 2022. The total value of these stakes amounted to $319 million. As of December 31, Rima Senvest Management is the largest shareholder in the company and has a stake worth $141.7 million.

8. Photronics, Inc. (NASDAQ:PLAB)

Number of Hedge Fund Holders: 25

Photronics, Inc. (NASDAQ:PLAB) is one of the largest semiconductor photomask manufacturers and distributors in the world. At the close of the fourth quarter of 2022, 25 hedge funds were bullish on Photronics, Inc. (NASDAQ:PLAB) and disclosed stakes worth $104.2 million in the company. Of those, Two Sigma Advisors was the top stockholder and disclosed a position worth $12.9 million.

This April, Northland analyst Gus Richard revised his price target on Photronics, Inc. (NASDAQ:PLAB) to $18 from $21 and maintained an Outperform rating on the shares.

Photronics, Inc. (NASDAQ:PLAB) is one of the best semiconductor equipment stocks to buy now and is currently trading at a compelling valuation. As of April 26, the stock is trading at a TTM PE ratio of 8x.

7. Entegris, Inc. (NASDAQ:ENTG)

Number of Hedge Fund Holders: 28

Entegris, Inc. (NASDAQ:ENTG) is a leading manufacturer and supplier of micro contamination control products, specialty chemicals, and advanced materials for the semiconductor industry. The stock is placed seventh on our list of the best semiconductor equipment stocks to buy now and has gained 11.45% year-to-date, as of April 26.

On April 17, Deutsche Bank updated its price target on Entegris, Inc. (NASDAQ:ENTG) to $90 from $95 and maintained a Buy rating on the shares.

At the close of Q4 2022, Entegris, Inc. (NASDAQ:ENTG) was spotted on 28 hedge funds’ portfolios. These funds held positions worth $1.02 billion in the company. As of December 31, Select Equity Group is the leading investor in the company and has a stake worth $491.2 million.

Brown Capital Management made the following comment about Entegris, Inc. (NASDAQ:ENTG) in its Q4 2022 investor letter:

“Entegris, Inc. (NASDAQ:ENTG) is a world-class supplier of advanced materials and process solutions for the semiconductor, life-sciences and other high-tech industries. Semiconductors have become more relevant as the world digitalizes. These transformative technologies require advanced chips that consume more materials and are less tolerant of contaminants during manufacturing. Entegris operates at this intersection of material intensity and material purity, which has allowed it to grow 50% faster than the semiconductor industry over the past five years. Entegris is the largest independent semiconductor materials supplier with a unique set of assets that boost manufacturing yields, saving customers time and money. Consumables comprise 80% of sales, making it less subject to the industry’s volatile capital-expenditure swings. The company has a myriad of competitive advantages including scale, reputation and deep materials expertise that create a solid competitive moat.”

6. Ambarella, Inc. (NASDAQ:AMBA)

Number of Hedge Fund Holders: 30

At the end of the fourth quarter of 2022, 30 hedge funds were long Ambarella, Inc. (NASDAQ:AMBA) and held positions worth $416.3 million in the company. Of those, Point72 Asset Management is the dominant shareholder in the company and has disclosed a position worth $45.8 million.

Wall Street is bullish on Ambarella, Inc. (NASDAQ:AMBA). This April, Imperial Capital analyst Brian Ruttenbur upgraded Ambarella, Inc. (NASDAQ:AMBA) to Outperform from In-Line and maintained his $95 price target on the shares.

As of April 26, Ambarella, Inc. (NASDAQ:AMBA) has gone up by 14.99% over the past 6 months. The stock is one of the best semiconductor equipment stocks to buy now, according to hedge funds.

5. Teradyne, Inc. (NYSE:TER)

Number of Hedge Fund Holders: 33

On March 24, KeyBanc analyst Steve Barger raised his price target on Teradyne, Inc. (NYSE:TER) to $117 from $110 and maintained an Overweight rating on the shares.

As of April 26, Teradyne, Inc. (NYSE:TER) has returned 13.55% to investors over the past 6 months. The stock is placed fifth on our list of the best semiconductor equipment stocks to buy now.

At the close of the fourth quarter of 2022, 33 hedge funds were eager on Teradyne, Inc. (NYSE:TER) and held stakes worth $874.9 million in the company. Of those, Alkeon Capital Management is the largest investor in the company and has a stake worth $186.5 million.

4. KLA Corporation (NASDAQ:KLAC)

Number of Hedge Fund Holders: 44

KLA Corporation (NASDAQ:KLAC) is trading at a TTM PE ratio of 14.69, as of April 26, and the stock has gained 16.69% over the past 6 months. KLA Corporation (NASDAQ:KLAC) is one of the best semiconductor equipment stocks to buy according to hedge funds.

As of January 27, Wells Fargo analyst Joe Quatrochi has a $455 price target and an Overweight rating on KLA Corporation (NASDAQ:KLAC).

KLA Corporation (NASDAQ:KLAC) was a part of 44 investors’ portfolios at the end of Q4 2022 that held collective positions worth $986.8 million in the company. As of December 31, Alkeon Capital Management is the top shareholder and has a position worth $264 million.

Aristotle Atlantic Partners, LLC, made the following comment about KLA Corporation (NASDAQ:KLAC) in its Q4 2022 investor letter:

“KLA Corporation (NASDAQ:KLAC) is a supplier of process control equipment and data analytics products for a broad range of industries, including semiconductors, printed circuit boards (PCB) and displays. It provides solutions for manufacturing and testing wafers and reticles, integrated circuits (IC or chip), packaging, light-emitting diodes (LED), power devices, compound semiconductor devices, microelectromechanical systems (MEMS), data storage, PCBs, flat and flexible panel displays, and general materials research, as well as providing contracted and comprehensive installation and maintenance services across its installed base. Customers in international markets account for about 90% of the company’s revenue.

We see a unique opportunity in KLA to benefit from the increasing complexity of semiconductor wafer manufacturing through its leading position in process technology and wafer inspection. We believe Wafer Fab Equipment (WFE) spending will continue to rise over the next decade, as semiconductor capital intensity remains elevated and as semiconductors continue to account for a larger share of the global economy due to the above average growth of IoT devices, auto electrification, data center and cloud computing, and mobile communication/computing. We see the stock as an attractive investment opportunity, as investor expectations for 2023 have been reset at lower levels following WFE capital expenditures (CapEx) cuts by foundries and semiconductor companies.”

3. ASML Holding N.V. (NASDAQ:ASML) 

Number of Hedge Fund Holders: 59

On April 19, ASML Holding N.V. (NASDAQ:ASML) announced earnings for the fiscal first quarter of 2023. The company reported an EPS of $5.42 and outperformed EPS estimates by $0.88. The company’s revenue for the quarter amounted to $7.39 billion, up 92.73% year over year and ahead of Wall Street estimates by $465.72 million. As of April 26, the stock has surged 26% over the past 6 months. ASML Holding N.V. (NASDAQ:ASML) is placed third among the best semiconductor equipment stocks to buy now.

This April, Deutsche Bank analyst Robert Sanders updated his price target on ASML Holding N.V. (NASDAQ:ASML) to EUR 650 from EUR 675 and maintained a Buy rating on the shares.

59 hedge funds disclosed having stakes in ASML Holding N.V. (NASDAQ:ASML) at the close of the fourth quarter of 2022. The total value of these stakes amounted to $5 billion. As of December 31, GQG Partners is the largest shareholder in the company and has a stake worth $305.7 million.

ClearBridge Investments made the following comment about ASML Holding N.V. (NASDAQ:ASML) in its Q4 2022 investor letter:

“ASML Holding N.V. (NASDAQ:ASML) makes semiconductor chip manufacturing equipment and is a leading supplier of lithography systems to the semiconductor industry. We expect ASML to grow above expectations as its innovative EUV technology is deployed and industry capacity expands. This in turn should lead to margin expansion and earnings leverage. In addition to more visible growth and profitability drivers relative to Intel, ASML also has a stronger balance sheet and higher returns on capital. As a semiconductor capital equipment provider, ASML directly improves the energy efficiency of semiconductor manufacturing, and governance and diversity initiatives at ASML are best in class.”

2. Lam Research Corporation (NASDAQ:LRCX)

Number of Hedge Fund Holders: 68

At the close of Q4 2022, 68 hedge funds were long Lam Research Corporation (NASDAQ:LRCX) and held positions worth $3 billion in the company. Of those, Alkeon Capital Management was the leading investor in the company and held a position worth $253.5 million.

Lam Research Corporation (NASDAQ:LRCX) reported strong earnings for the third quarter of fiscal 2023, on April 19. The company generated a revenue of $3.87 billion and beat Wall Street consensus by $22.27 million. The company reported an EPS of $6.99 and outperformed EPS estimates by $0.46.

This April, Mizuho revised its price target on Lam Research Corporation (NASDAQ:LRCX) to $520 from $525 and reiterated a Buy rating on the shares. The stock has returned 20.25% to investors on a year-to-date basis, as of April 26. Lam Research Corporation (NASDAQ:LRCX) is one of the best semiconductor equipment stocks to buy now.

1. Applied Materials, Inc. (NASDAQ:AMAT) 

Number of Hedge Fund Holders: 70

Applied Materials, Inc. (NASDAQ:AMAT) is the best semiconductor equipment stock to buy now according to hedge funds. As of April 26, the stock has gained 13.78% year to date and is trading at a PE multiple of 14x.

On March 1, KGI Securities analyst Derek Chang upgraded Applied Materials, Inc. (NASDAQ:AMAT) to Outperform from Neutral and reiterated his $145 price target on the shares.

At the end of the fourth quarter of 2022, Applied Materials, Inc. (NASDAQ:AMAT) was spotted on 70 hedge funds’ portfolios. These funds held positions worth $3.7 billion in the company. As of December 31, Generation Investment Management is the dominant stockholder in the company and has a position worth $678 million.

Davis Advisers made the following comment about Applied Materials, Inc. (NASDAQ:AMAT) in its 2022 annual investor letter:

“If Berkshire represents “growing value” then Applied Materials, Inc. (NASDAQ:AMAT) might be said to represent “undervalued growth.” Founded more than a half century ago, Applied Materials has grown to be the largest supplier of manufacturing tools, services and software to the semiconductor industry. Holding more than 15,000 patents, Applied has become the irreplaceable supplier to the critical global growth industry, semiconductors. Because this company’s earnings can be uneven, short-sighted investors often label this company as “cyclical” and assign it a relatively low valuation.

We disagree and, having perused more than 50 years of data, conclude that Applied is unquestionably a growth company trading at a value price. Figure 8 shows the two sustainable drivers of this growth. The green bars indicate that semiconductor manufacturers have grown industry revenue at 7.5% over the last decade, more than three times the growth of the U.S. economy over this same decade. The orange line indicates that the percentage of this revenue that the industry commits to capital spending has gradually risen from roughly 20% to 30%. Putting these two trends together, it should come as no surprise that Applied has grown revenue at a rate of 11%, and operating income at more than 19% over this same time period.

In the near term, the impact of the chip industry’s post-pandemic inventory correction, which could reduce equipment demand, may more than offset the benefit of recent supply chain issues that limited Applied Materials’ ability to meet customer demand. Longer term, geopolitical tensions between China and the U.S. are driving investment in potentially redundant chip production globally, while at the same time the U.S. and her allies are restricting export of leading edge production tools into China. Even though the near term is frustratingly veiled in uncertainty, the recent shortages and trade restrictions have firmly established that access to chip-production technology is essential to every major industrial economy. Given this, we see more opportunity than risk and estimate that Applied Materials could sell at about 10 times what the company could be earning three-to-five years from now.”

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Disclosure: None. 10 Best Semiconductor Equipment Stocks to Buy is originally published on Insider Monkey.