JPMorgan Boosts Wafer Fab Equipment Outlook, Names KLA Top US Pick

JPMorgan has significantly upgraded its outlook for the semiconductor equipment market, citing an AI-driven investment surge, and designated KLA Corporation (KLAC) as its top U.S. stock pick in the sector.

In a note to clients on Friday, the investment bank presented a more bullish forecast for the wafer fabrication equipment (WFE) market, which supplies the machinery used to produce semiconductors.

AI Demand Drives Forecast Upgrade

JPMorgan analyst Mio Shikanai lifted the bank's WFE market growth estimates, projecting a 28% compound annual growth rate (CAGR) from 2025 through 2028. The new forecasts are:

• 2026: 31% growth to $163 billion
• 2027: 38% growth to $225 billion
• 2028: 17% growth to $263 billion

Ad

Shikanai attributed the upward revision to accelerating investments from cloud service providers (CSPs) to meet rising AI-related demand. The note highlighted that spending by the top four U.S. CSPs is anticipated to grow at a 58% annual rate through 2028. Continued strength in DRAM memory and high utilization rates at leading foundries like TSMC also underpin the optimistic outlook.

KLA Favored for Risk/Reward

Among U.S. equipment manufacturers, JPMorgan identified KLA as its top pick, citing an attractive risk/reward profile. The bank noted that while KLA shares have risen approximately 50% year-to-date, they have lagged peers Lam Research (LRCX) and Applied Materials (AMAT), which are up about 85% and 82%, respectively.

According to the note, this underperformance stems from peers benefiting more directly from recent memory-related spending. Shikanai anticipates a market rotation toward foundry and logic spending in 2027, a shift that would disproportionately benefit KLA. The analyst also sees potential for upward revisions to consensus revenue estimates for the company, pointing to rising capital expenditure budgets at customers like Intel as a potential catalyst.