JPMorgan Names Top Chip Equipment Stocks, Citing AI-Driven 'Upcycle'

JPMorgan has identified its top stock picks in the semiconductor capital equipment sector, forecasting a strengthening upcycle as the buildout of artificial intelligence (AI) fabrication facilities accelerates amid a tight supply of manufacturing tools.

AI Driving Equipment Demand

In a note to clients, the investment bank projected that the market for wafer fabrication equipment (WFE) will grow by 31% year-over-year in 2026 and 38% in 2027. JPMorgan's analysis suggests that AI-related demand is pulling orders forward and strengthening visibility for equipment makers.

This dynamic is expected to drive a stronger second half of 2026 and further acceleration into 2027 and 2028. The firm stated that there is building upside risk to its WFE forecasts as the industry cycle gains momentum, driven by new fab capacity announcements and accelerated tool procurement.

JPMorgan's Top Picks

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The bank highlighted four companies positioned to benefit from this trend:

• KLA Corporation (KLAC): Named as JPMorgan's top pick in the sector, with the firm citing the stock's favorable risk/reward profile following recent underperformance. KLA recently reported fourth-quarter fiscal 2026 revenue of $3.658 billion, which was above analyst expectations.
• Applied Materials (AMAT): The firm maintains a positive view, noting the company is well-positioned in DRAM markets and benefits from broad exposure to the equipment cycle. Applied Materials recently issued revenue guidance of $10.25 billion, exceeding consensus estimates.
• Lam Research (LRCX): Favored for its strength in etch and deposition equipment, which positions the company to capitalize on the ongoing fab buildout. Lam Research posted record revenue of $6.72 billion for its fourth fiscal quarter of 2026.
• MKS Instruments (MKSI): Highlighted for its exposure to early-cycle subcomponents as broader equipment demand increases. MKS reported stronger-than-expected second-quarter 2026 results, with revenue of $1.25 billion.

Market Implications

JPMorgan's analysis concludes that the combination of strong AI-driven demand and limited tool supply is creating a favorable environment for semiconductor capital equipment manufacturers. This suggests the current upcycle could be both stronger and longer than previously expected, improving earnings visibility across the entire equipment supply chain.