Citigroup has increased its price targets for semiconductor equipment manufacturers Applied Materials (AMAT.US), Lam Research (LRCX.US), and KLA-Tencor (KLAC.US), expressing strong optimism regarding the demand outlook for NAND equipment.

In pre-market trading on Wednesday, shares of Applied Materials rose 4%, while KLA-Tencor and Lam Research gained more than 3%. The institution noted that a widening gap between required DRAM and available supply is driving the adoption of complementary solutions like key-value (KV) cache dumping.

Citigroup analysts stated: "We currently forecast that, under an optimistic scenario, the global wafer fab equipment market will reach approximately $145 billion, $200 billion, and $250 billion in 2026, 2027, and 2028, respectively. This implies robust growth of 25% still to be achieved in 2028. Given the ongoing capacity constraints and expansion plans faced by TSMC and memory chip manufacturers, as well as recent progress at Intel and Samsung's foundries, we hold a more positive view on the wafer fab equipment outlook for 2028."

Citigroup indicated that the rise of agentic artificial intelligence is triggering a "structural increase" in NAND demand, as DRAM supply becomes increasingly tight amid surging memory needs.

"Multi-step reasoning workflows are dramatically expanding the footprint of key-value caching, pushing total memory requirements far beyond what high-cost HBM and DRAM can efficiently support, particularly in an environment of constrained DRAM supply and high prices... This does not signal weakening demand but rather highlights the growing divergence between required and available memory. Consequently, we are observing companies accelerating the adoption of complementary solutions, such as key-value cache dumping—which involves transferring intermediate model states to lower-cost, higher-capacity storage tiers."

Citigroup pointed out that, combined with ongoing innovation in high-performance NAND like HBF and XL-Flash, this shift constitutes a structural positive for NAND demand. Both cloud computing and edge applications are increasingly reliant on NAND to expand capacity, control costs, and support the increasingly complex workloads of agentic AI.

Financial Forecasts and Target Price Adjustments

Looking ahead, Citigroup has introduced its first calendar year 2028 financial estimates for Applied Materials, Lam Research, and KLA-Tencor, raising their price targets based on projected 2028 calendar year profitability.

Applied Materials: Citigroup raised its target price from $550 to $710. The firm models total revenue growth of 30% and 22% year-over-year for calendar years 2027 and 2028, respectively, with the Semiconductor Systems segment growing 35% and 25%, and the Global Customer Support segment growing 14% and 13%.

Lam Research: Analysts increased its target price from $315 to $450. "We anticipate total revenue growth of 28% and 22% year-over-year for calendar years 2027 and 2028, respectively, with the Wafer Fabrication Equipment Systems segment growing 36% and 25%, and the Customer Support Business segment growing 12% and 13%."

KLA-Tencor: The investment firm expects its total revenue to grow 24% and 22% for calendar years 2027 and 2028, respectively. Within that, the Semiconductor Process Control Systems segment is projected to grow 28% and 25%, the Semiconductor Process Control Services segment 14% and 14%, and the Electronics, Packaging & Components business 15% and 15%.

Citigroup significantly raised its target price for KLA-Tencor from $206.4 to $290, applying a 40x price-to-earnings multiple to its calendar year 2028 earnings per share estimate.