Applied Materials upgraded, KLA downgraded on shifts in semiconductor spending

Investing.com -- Jefferies upgraded Applied Materials (NASDAQ:AMAT) to Buy and downgraded KLA Corp to Hold amid shifting trends in semiconductor spending and evolving dynamics in China.

The firm raised its 2025 wafer fabrication equipment forecast to $105 billion, up from $103 billion, reflecting stronger DRAM and TSMC capex that offset weakening outlooks for Intel (NASDAQ:INTC) and Samsung (KS:005930).

Jefferies sees DRAM spending remaining strong, driven by high-bandwidth memory and DRAM demand for high-performance computing.

“We raise our WFE estimate for 2025 as better DRAM and TSMC capex help offset a weakening China outlook and leading edge capex cuts from Intel and Samsung,” Jefferies noted.

Jefferies upgraded AMAT due to its positioning as a beneficiary of increased leading edge and DRAM spending, along with reduced exposure to China. The firm highlighted that AMAT’s March guidance suggests China exposure will be the lowest among its peers.

Jefferies downgraded KLA, citing that its growth from the strong N2 cycle at TSMC is already priced into the stock. KLA also remains the most exposed to China, with 36% of its Q4 revenue coming from the region.

China accounted for 32% of WFE spending in Q4, posing a potential headwind as its share of WFE is expected to return to a more sustainable 15-20% over time.

Jefferies warned that while the firm’s 2025 WFE estimate is now $105 billion, street estimates still imply $117 billion, suggesting downward revisions may be needed if market conditions do not improve.

There is still need to see some downward estimate revisions over the course of the year if the backdrop does not meaningfully improve, especially with China remaining an overhang, Jefferies added.

Jefferies remains most positive on Lam Research (NASDAQ:LRCX), expecting the company to benefit from the NAND recovery driven by upgrades. The firm also lowered estimates for Onto Innovation (NYSE:ONTO) and Camtek (NASDAQ:CAMT) due to Samsung’s digestion of HBM capacity.