In this article, we will discuss the 11 Best Semiconductor Equipment Stocks to Buy According to Analysts
As per Straits Research, the US semiconductor manufacturing equipment market size was pegged at US$13.2 billion in 2024. It is expected to grow from US$13.5 billion in 2025 to US$16.5 billion by 2033. This growth is expected to stem from increasing investments in domestic semiconductor manufacturing and the higher demand for advanced semiconductors in critical sectors, including artificial intelligence (AI), 5G, and EVs.
Market Drivers for Semiconductor Manufacturing Equipment
Straits Research highlighted that the resurgence of semiconductor manufacturing in the US is aided by the government initiatives. The federal push is targeted at reducing the dependency on Asian imports as well as strengthening the domestic supply chains. Leading companies continue to establish new fabs in the US, which helps create demand for advanced wafer manufacturing and fabrication equipment. Overall, the increased requirement for high-performance chips in sectors including defense, telecommunications, and automotive further cements the growth of semiconductor equipment.
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Growth Opportunities for Semiconductor Equipment
The rapid adoption of AI and 5G technologies in the United States continues to present strong opportunities for the broader semiconductor manufacturing equipment market, highlighted Straits Research. AI chips, primarily the ones utilized in data centers and autonomous vehicles, need advanced manufacturing techniques, fueling demand for cutting-edge equipment. Furthermore, the launch of 5G networks has been driving rapid production of semiconductors, which are capable of handling higher data transmission rates, further enhancing the need for advanced fabrication technology. The US is well-placed as a leader in AI and 5G development, with leading companies driving innovation, demonstrating strong growth potential.
KPMG believes that Al is now the most important application fueling semiconductor companies’ revenue as businesses continue to incorporate the technology in their digital transformations. As a result, the spending on Al semiconductors is projected to be $174 billion in 2025, which is expected to increase to $280 billion in 2028. KPMG also highlighted that semiconductor leaders opine that Al enablers (which include high-bandwidth memory) are the production technology that can have an impact on the broader industry over the upcoming 3 years. In an era in which Al applications are present in all the industries – ranging from autonomous vehicles to healthcare diagnostics, household devices to personalized recommendations—there remains a higher demand for semiconductors aiding Al capabilities.
Amidst such trends, let us now have a look at the 11 Best Semiconductor Equipment Stocks to Buy According to Analysts
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Our Methodology
To list the 11 Best Semiconductor Equipment Stocks to Buy According to Analysts, we used a screener to shortlist the companies catering to the broader semiconductor equipment market. Next, we filtered out the stocks that analysts see significant upside to. The stocks are arranged in ascending order of their average upside potential, as of April 9. We also mentioned the hedge fund sentiments around each stock, as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
11 Best Semiconductor Equipment Stocks to Buy According to Analysts
11. KLA Corporation (NASDAQ:KLAC)
Average Upside Potential: ~27.3%
Number of Hedge Fund Holders: 58
KLA Corporation (NASDAQ:KLAC) designs and manufactures yield-management and process-monitoring diagnostic and control systems for the broader semiconductor industry. The company has had its stock upgraded from “Equalweight” to “Overweight” by Morgan Stanley. This was backed by a favourable outlook on the company’s growth potential in the wafer fabrication equipment (WFE) sector. As per the analysis, KLA Corporation (NASDAQ:KLAC) is expected to outperform the WFE market.
The firm’s confidence in KLA Corporation (NASDAQ:KLAC) stems from 2 main drivers. Firstly, Morgan Stanley highlighted the process control intensity as a critical factor, which is expected to witness a structural increase. Secondly, the firm’s optimism stems from KLA Corporation (NASDAQ:KLAC)’s potential for market share gains in process control. As per the firm, the company’s position, together with its fundamental technology and data processing capabilities, can allow it to continue to enhance its market share. The company’s continued innovation in process control and yield management solutions places it well to benefit from increasing semiconductor manufacturing complexity, which includes the adoption of EUV layers and the shift to smaller node sizes.
Parnassus Investments, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“We also added several new positions, including two in Information Technology: Workday, a category leader for enterprise cloud applications for finance and human resources, and KLA Corporation (NASDAQ:KLAC), a leader in semiconductor process control. KLA, a leader in semiconductor process control, benefits from inherently high switching costs, structurally higher demand for advanced semiconductors and increasingly complex semiconductor manufacturing. The company has a strong management team that is positioning it well for long-term growth. Concerns about weaker demand in China have impacted KLA’s stock price recently, but we believe the secular growth in other regions could offset the risk in the longer term.”
10. ASML Holding N.V. (NASDAQ:ASML)
Average Upside Potential: ~37.3%
Number of Hedge Fund Holders: 86
ASML Holding N.V. (NASDAQ:ASML) offers lithography solutions for the development, production, marketing, sales, upgrading, as well as servicing of advanced semiconductor equipment systems. Didier Scemama, an analyst from Bank of America Securities, maintained a “Buy” rating on the company’s stock. The rating is backed by a combination of factors demonstrating its position in the broader semiconductor industry. As per the analyst, one of the main reasons revolves around the expected increase in lithography intensity, with the industry moving beyond 2nm nodes.
Furthermore, the structural advantages of well-established foundries such as TSMC, which are the early adopters of multi-patterning EUV, aid ASML Holding N.V. (NASDAQ:ASML)’s market position. Also, the emergence of an EUV ecosystem in China highlights the increasing global demand for EUV technology, says the analyst. Elsewhere, Krish Sankar, an analyst from TD Cowen, maintained a “Buy” on ASML Holding N.V. (NASDAQ:ASML)’s stock. This rating was backed by factors demonstrating the company’s leading position in the lithography market, which remains crucial for addressing challenges in both foundry as well as logic sectors.
Generation Investment Management, an investment management firm, released its Q4 2024 investor letter. Here is what the fund said:
“ASML Holding N.V. (NASDAQ:ASML), a Dutch company and a recent addition to our portfolio, is a critical enabler of the semiconductor industry. They provide advanced lithography equipment, which is essential for producing semiconductors. As demand for chips accelerates – driven by AI, electrification and broader applications across the economy – ASML stands to benefit significantly.
ASML operates in a near-monopolistic position in lithography machines, thanks to decades of engineering expertise and innovation. Over the past five years, the company has grown revenues at 20% annually. We expect the company’s revenue growth to moderate but continue to grow strongly, in line with the semiconductor industry. Margins are likely to expand over time, underscoring ASML’s high quality and earnings potential.
There are risks. Short-term volatility in orders, and geopolitical trade restrictions, could affect growth. Over the long term, disruptive innovation outside of lithography poses a challenge, though we believe ASML’s position is secure. We therefore find the valuation of the company attractive. We are confident in its ability to compound value over the coming years.”
9. Applied Materials, Inc. (NASDAQ:AMAT)
Average Upside Potential: ~46.1%
Number of Hedge Fund Holders: 80
Applied Materials, Inc. (NASDAQ:AMAT) is engaged in providing manufacturing equipment, services, and software to the semiconductor, display, and associated industries. Jefferies analysts upped the company’s stock to “Buy” from “Hold” with a price objective of $195, up from the previous target of $185. This upgrade was backed by recovering demand, which can help the company’s stock to continue to rise despite the US-China trade tensions. The analysts, led by Blayne Curtis, highlighted the pivoting of macro conditions, which includes a recovery in DRAM and NAND memory demand. Jefferies also believes that Applied Materials, Inc. (NASDAQ:AMAT) remains well-placed to benefit from trends to shift semiconductor supply chains to the US.
Applied Materials, Inc. (NASDAQ:AMAT) is expected to capitalize on the AI-driven semiconductor boom, which offers a strong growth opportunity. The elevated demand for AI applications throughout industries continues to fuel the need for more advanced and specialized semiconductor chips, which, in turn, need more sophisticated manufacturing equipment. Therefore, Applied Materials, Inc. (NASDAQ:AMAT)’s expertise in materials engineering and its broad portfolio of technologies remain in line with the needs of AI chip production.
Vltava Fund, an investment management company, recently published its Q4 2024 investor letter. Here is what the fund said:
“In the quarter just ended, we added to the portfolio two new companies from the technology sector: Applied Materials, Inc. (NASDAQ:AMAT) and Lam Research. Both are in the same industry as is another of our investments that we have held for some time, KLA Corporation. This industry is termed semiconductor devices and materials. One chapter in Hidden Investment Treasures is devoted to investing in technology companies and, among other things, the controversy over what really constitutes a technology company. As investors, we try to view technology companies not according to the industry into which they are formally classified but by whether the technologies and technological processes used in the production of their products and services are an essential element in value creation or if they are a source of long-term, sustainable competitive advantage. Among the companies that are formally categorized as technology-based and fall into either the Information Technology or the Communications Services sector, we find some that can be said to be just that but also others for which this classification is at least debatable. Similarly, among companies that do not formally belong to these two sectors, we find many that clearly are built to a large extent on technology and base their market positions and competitiveness on it. In the cases of Applied Materials and Lam Research, there can be no doubt that these are technology companies not only as a formality but also in fact.
Applied Materials provides manufacturing equipment, services, and software for the semiconductor, display, and related industries. Its principal business activities are semiconductor systems and Applied Global Services. Its largest customers are Samsung and Taiwan Semiconductors, but its overall clientele is more diversified than is that of Lam Research. At first glance, it would appear that Applied Materials has a somewhat less tangible and definable competitive advantage compared to KLA Corporation and Lam Research, but the numbers do not support such a view. Net margins likewise in the neighborhood of 27% and ROCE around 30% are outstanding. Basically, it can be said that all three companies we own have very similar underlying profitability metrics. Even their valuations, growth, and potential are similar. All have strong free cash flow and strong balance sheets, and they are regularly buying back their own shares over the long term and in large volumes…” (Click here to read the full text)
