Why Citi is turning more bullish on semi equipment stocks

Investing.com — Citi revealed Monday that it has turned more positive on U.S. semiconductor equipment stocks, lifting its 2025 and 2026 wafer fab equipment (WFE) forecasts and raising price targets on Applied Materials (NASDAQ:AMAT), KLA Corp., and Lam Research (NASDAQ:LRCX).

Following recent geopolitical developments, Citi analysts said, “We believe the major downside risk of a broader ban on semiconductor equipment is off the table for now,” citing China’s agreement to restore rare-earth magnet export licenses and the U.S. lifting the EDA ban.

With improved visibility, Citi now expects flat WFE growth in 2025, followed by a 10% increase in 2026, up from prior estimates of -5% and +2%, respectively.

The analysts attributed the improved outlook to “improving memory outlook and higher AI cloud capex next year.”

They added, “WFE is highly correlated with data center capex and the industry needs to add $15–20B in WFE annually to support growing AI semis TAM through 2030.”

Citi believes the sector has “entered Phase 2” of its cycle framework and noted that while P/E multiples for the Big 3 have recovered from April lows, they remain about “20% below prior peak.”

Among the top picks, Citi said it prefers “KLAC > LRCX > AMAT on higher leading-edge foundry/logic sales exposure which is expected to grow the fastest.”

The firm raised its KLAC FY26 EPS estimate by 3% and its price target to $1,035; LRCX FY25/26 EPS by 2%/16% with a $108 target; and AMAT FY25/26 EPS by 2%/8%, raising its target to $220.

Citi continues to see risks from “macro weakness, overdependence on AI semis demand, and geopolitical risks due to Trump administration policy changes on China/Taiwan.” Nonetheless, it maintains a broadly positive stance, citing the sector’s structural tailwinds.

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