Meta’s Secret Chip Just Made Applied Materials and Lam Research Investors Very Happy

TLDR

• Meta plans to start manufacturing its in-house AI chip, called “Iris,” in September
• Applied Materials, Lam Research, and KLA all rose sharply on the news, each gaining over 4%
• Lumentum led the S&P 500 with a 12% jump on the day
• Multiple analysts raised price targets on Applied Materials and Lam Research following the news
• The wafer fab equipment market is projected to grow from $145 billion this year to $250 billion by 2028

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Meta Platforms announced plans to begin manufacturing its custom AI chip, “Iris,” in September. The news sent chip equipment stocks sharply higher on Thursday.

Applied Materials, Lam Research, and KLA all make wafer fab equipment — the machinery that turns raw silicon into microchips. All three stocks gained more than 4% on the day.

Applied Materials, Inc., AMAT

Lumentum, an optical networking company, rose 12%, placing it near the top of the S&P 500. Vertiv Holdings added 2.8%.

Meta declined to comment to Barron’s on the report, which was first published by Reuters.

Why Chip Equipment Makers Stand to Benefit

Applied Materials, Lam Research, and KLA are direct suppliers to the chip manufacturing process. When a company like Meta decides to build its own chips, it creates demand for the equipment these companies sell.

All three stocks have already gained more than 90% this year. Wall Street has been betting that demand for chip-making equipment would stay strong.

Citi estimates the wafer fab equipment market is worth about $145 billion this year. It projects growth to $200 billion in 2027 and $250 billion in 2028.

Citi expects hyperscaler capital spending — from companies like Meta, Amazon, Microsoft, Alphabet, and Oracle — to rise 84% this year. That group is expected to spend more than $1.1 trillion in 2027, up from $650 billion this year.

Stifel analysts said “agentic AI has steepened the demand curve for memory and logic chips.” They project wafer fab equipment spending to reach $192 billion in 2027 and $225 billion in 2028.

What Analysts Are Saying

Mizuho raised its price targets on Lam Research to $400 from $380 and on Applied Materials to $650 from $540. Both stocks kept their Outperform rating.

TD Cowen raised its Applied Materials price target to $700 from $525.

Morgan Stanley maintained its $404 price target on both Lam Research and KLA, keeping an Overweight rating on each.

Stifel raised its price targets on Applied Materials to $650 from $530, on KLA to $270 from $191, and on Lam Research to $425 from $325. All three carry Buy ratings at Stifel.

Morgan Stanley analyst Shane Brett said he expects Lam Research to report stronger-than-expected fourth-quarter earnings at the end of July, with a likely guidance raise.

On KLA, Brett said the long-term outlook is positive but the near-term view is more cautious. He noted that any earnings beat is already expected by the market.

Stifel also raised price targets on smaller players Ichor Holdings and Cohu, rating both at Buy.

The next catalyst for these stocks will be Lam Research’s fourth-quarter earnings report, expected at the end of July.