Semiconductor Equipment Sector Poised for Growth, Bank of America Names Top Picks

Bank of America analysts see a compelling investment opportunity in semiconductor capital equipment stocks, driven by a strengthening outlook for wafer fabrication equipment (WFE) spending. Major firms in the sector have collectively raised their calendar year 2026 WFE forecast to $150-$160 billion, a significant increase from prior estimates and representing 30% year-over-year growth.

Upgraded Outlook and Valuations

The positive revision comes as the industry anticipates continued acceleration into 2027, fueled by demand for memory upgrades, advanced logic nodes, and enhanced packaging technologies. According to the BofA report, bottom-up consensus estimates project WFE spending could reach $156 billion in 2026, $213 billion in 2027, and $262 billion in 2028.

Analysts noted that despite the strong outlook, the sector has experienced stock pullbacks ranging from 20% to 40%. This has resulted in more attractive valuations, with forward three-year price-to-earnings-growth (PEG) ratios around 0.7x, a level the bank considers inexpensive given the potential for durable earnings growth.

Bank of America's Top Selections

BofA identified four key companies positioned to benefit from these industry trends:

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• Lam Research (LRCX): The firm highlighted Lam's growing value capture as chip manufacturing complexity increases, particularly in NAND memory. Lam's customer service business group also saw robust growth of 43% year-over-year.
• Applied Materials (AMAT): BofA noted that Applied Materials has the highest exposure to DRAM, which is expected to be the fastest-growing segment of WFE spending in 2026-2027. The bank set a $720 price objective for the stock.
• MKS Instruments (MKSI): The company is seen as a beneficiary of both WFE and printed circuit board complexity, offering powerful earnings per share leverage. BofA's $500 price objective is based on its analysis of the company's higher margins.
• Teradyne (TER): Teradyne's recent results demonstrate what BofA calls "secularly rising test intensity" in semiconductors. The firm's $450 price objective reflects the company's growth profile and potential for market share gains.

Broader Industry Context

The bullish analyst outlook is supported by recent corporate performance and investments. Lam Research recently reported record quarterly revenue of $6.72 billion, while Teradyne announced second-quarter 2026 revenue of $1.33 billion, with both companies surpassing analyst estimates.

Separately, MKS Instruments announced a $25 million investment to expand its equipment manufacturing facility in Guangzhou, China. The project is expected to double the site's production capacity, signaling confidence in long-term demand.