3 Semi Equipment Stocks to Keep Your Sights On

Industry Overview - The wafer fab equipment (WFE) industry is expected to experience solid growth driven by strong semiconductor demand and existing capacity levels [1][7] - Key drivers include the adoption of AI, IoT, EVs, and renewable energy, supported by government regulations and funding globally [1][4] - The industry is characterized by long sales cycles and contracts, providing relative stability amid economic uncertainty [12][14] Demand and Capacity - Semiconductor demand is anticipated to remain robust, particularly due to AI-driven workloads, which will increase demand for servers and semiconductors [2][7] - The equipment industry is projected to grow by 3.4% in 2023, with sales expected to strengthen by 17% in 2024 [2][3] - China, Taiwan, and Korea are expected to be the top destinations for WFE through 2025, with China projected to spend a record $35 billion in 2024 [3][8] Technology Transitions - Significant technology transitions, such as the shift to larger wafer sizes and advanced memory technologies like HBM, are driving equipment purchases [5][6] - HBM is expected to improve energy efficiency by 30% and is projected to grow from 8.4% of DRAM revenue in 2023 to 20.1% by the end of 2024 [5][6] - The integration of memory with compute is expected to stabilize demand over the next decade [7] Geopolitical Factors - Export regulations and geopolitical tensions, particularly between the U.S. and China, pose challenges for the industry [8][9] - Despite these challenges, the demand for semiconductor equipment is expected to remain strong due to strategic investments in capacity by various countries [8][9] Company Performance - Applied Materials (AMAT) is well-positioned due to its deep customer relationships and broad product offerings, with expectations of significant growth in its HBM business [15][16][18] - ASML Holding N.V. (ASML) anticipates continued momentum driven by AI and energy transition, with a strong order book supporting growth [19][20][21] - Lam Research Corp. (LRCX) is diversifying its focus and expects substantial increases in WFE spending, particularly in advanced compute and memory segments [22][23][24] Financial Outlook - The Zacks Semiconductor Equipment - Wafer Fabrication Industry has a strong growth outlook, with a Zacks Industry Rank of 16, placing it in the top 6% of classified industries [10][11] - The industry's aggregate earnings estimate for 2024 shows a steady increase of 4.6% over the past year, with a projected 14.8% increase for 2025 [11] - Stocks in this industry have collectively gained 41.2% over the past year, outperforming the broader market indices [12]