MW This could be a better - and safer - way into the AI trade in 2026
By Britney Nguyen and Philip van Doorn
Analysts' favorites among providers of manufacturing and testing equipment for chip makers include Applied Materials and ASML
Investors might be well served to look beyond chip makers to the companies that make manufacturing and testing equipment for the semiconductor industry.
Some investors may need to be reminded that the semiconductor industry is cyclical. And after several years of incredible gains for shares of dominant chip makers amid the boom in generative artificial intelligence, it might be best to steer clear of competition at the top - and focus more on companies that provide essential equipment and services to semiconductor manufacturers.
Nvidia (NVDA) is now the largest stock within the S&P 500 SPX, with a market capitalization of $4.6 trillion. It makes up 7.7% of the SPDR S&P 500 ETF Trust SPY. If you are a U.S. investor who likes index funds, chances are that you have a lot of money indirectly invested in Nvidia.
For U.S. investors, the best-known providers of specialized manufacturing and testing equipment and related services to chip makers are probably ASML Holding $(ASML)$, Lam Research $(LRCX)$ and Applied Materials (AMAT).
No matter which of Nvidia's competitors are able to take significant share of the market for semiconductors that support generative-AI technology, these semiconductor capital equipment, or semicap, makers should benefit as the AI buildout continues.
Also read: Tech's biggest bull lists his top 5 AI stocks for 2026, and Nvidia isn't one of them
So we thought it would be useful to present some data related to this group of companies to help long-term investors with their research.
There are 25 companies in the "semiconductor equipment and testing" industry group, as determined by LSEG, among stocks in the PHLX Semiconductor Index SOX, the S&P Composite 1500 XX:SP1500 or MSCI World Index XX:990100. This group of 25 stocks represents a deeper worldwide dive into this corner of the semiconductor industry.
Below are the 25 stocks sorted by how much upside potential is indicated for 2026, based on consensus price targets among analysts polled by LSEG.
The table includes percentages of "buy" or equivalent ratings among the analysts, as well as projected compound annual growth rates (CAGR) for the companies' revenue, and earnings per share from calendar 2025 through 2027 based on consensus estimates. For some of the companies, sales and/or EPS growth projections are only for 2026, since consensus 2027 estimates are not yet available. These are explained in the notes below.
(You may need to scroll the table or flip your screen to landscape view to see all of the data.)
Name 12-month upside potential implied by consensus price targets Share "buy" ratings 2-year estimated sales CAGR through 2027 2-year estimated EPS CAGR through 2027 Ultra Clean Holdings Inc. 36% 100% 11.3% 37.7% Axcelis Technologies Inc. 28% 38% 4.5% 0.7% Photronics Inc. 28% 100% 6.9% 12.5% Cohu Inc. 22% 80% 15.3% N/A ASM International N.V. 19% 76% 13.2% 18.7% PDF Solutions Inc. 17% 100% 18.3% 17.5% Entegris Inc. 15% 69% 7.1% 21.1% Veeco Instruments Inc. 13% 40% 8.4% 17.6% Disco Corp. 12% 57% 10.8% 13.5% BE Semiconductor Industries N.V. 12% 62% 35.7% 70.4% GlobalFoundries Inc. 10% 43% 7.5% 18.9% KLA Corp. 6% 41% 10.0% 13.5% Tokyo Electron Ltd. 4% 78% 9.4% 13.5% ACM Research Inc. 4% 88% 22.0% 13.6% Kulicke & Soffa Industries Inc. 3% 60% 16.5% 241.5% Teradyne Inc. 3% 72% 18.6% 36.7% Onto Innovation Inc. 2% 67% 16.6% 23.2% Screen Holdings Co. Ltd. 2% 44% 5.9% 9.8% Applied Materials Inc. 1% 65% 7.8% 11.3% ASML Holding N.V. 1% 80% 10.2% 14.6% FormFactor Inc. -1% 50% 6.9% 23.6% Lam Research Corp. -2% 70% 12.1% 16.7% Advantest Corp. -2% 70% 14.7% 24.3% Lasertec Corp. -10% 25% 5.8% 7.0% Amkor Technology Inc. -11% 46% 9.0% 35.1% Source: LSEG
Click on the tickers for more information about each company, including price ratios, estimates and financials.
Read: Tomi Kilgore's guide to the wealth of information available for free on the MarketWatch quote page
For Photronics $(PLAB)$ and Kulicke & Soffa Industries $(KLIC)$, the revenue and EPS projections are only for 2026. For ACM Research $(ACMR)$, the revenue projection is a two-year CAGR, but the EPS growth projection is only for 2026. For Cohu $(COHU)$, there is no EPS projection because the company is expected to post a net loss for 2025.
There are several stocks on the list that are highly regarded by the analysts, but whose price targets are close to the current prices. This is because analysts working for brokerage and research firms nearly all set 12-month price targets, even though that might be considered to be a short period for long-term investors.
The question of demand sustainability usually comes up at the start of a new year given the cyclical nature of the semiconductor industry. Another concern is the dynamic of having an oligopoly of semicap suppliers for a small base of buyers, Mizuho desk-based analyst Jordan Klein told MarketWatch.
Looking out into this year, however, Klein said it "is the first time in a long time that I can remember where the whole sustainability fear question is not as big a concern for investors."
That points to strong demand trends, he said. While AI demand is a driver, Klein said more complex chip designs are also helping to create upward momentum in the growth rate among semicap companies - a trend he doesn't see slowing anytime soon.
MW This could be a better - and safer - way into the AI trade in 2026
By Britney Nguyen and Philip van Doorn
Analysts' favorites among providers of manufacturing and testing equipment for chip makers include Applied Materials and ASML
Investors might be well served to look beyond chip makers to the companies that make manufacturing and testing equipment for the semiconductor industry.
Some investors may need to be reminded that the semiconductor industry is cyclical. And after several years of incredible gains for shares of dominant chip makers amid the boom in generative artificial intelligence, it might be best to steer clear of competition at the top - and focus more on companies that provide essential equipment and services to semiconductor manufacturers.
Nvidia (NVDA) is now the largest stock within the S&P 500 SPX, with a market capitalization of $4.6 trillion. It makes up 7.7% of the SPDR S&P 500 ETF Trust SPY. If you are a U.S. investor who likes index funds, chances are that you have a lot of money indirectly invested in Nvidia.
For U.S. investors, the best-known providers of specialized manufacturing and testing equipment and related services to chip makers are probably ASML Holding (ASML), Lam Research (LRCX) and Applied Materials (AMAT).
No matter which of Nvidia's competitors are able to take significant share of the market for semiconductors that support generative-AI technology, these semiconductor capital equipment, or semicap, makers should benefit as the AI buildout continues.
Also read: Tech's biggest bull lists his top 5 AI stocks for 2026, and Nvidia isn't one of them
So we thought it would be useful to present some data related to this group of companies to help long-term investors with their research.
There are 25 companies in the "semiconductor equipment and testing" industry group, as determined by LSEG, among stocks in the PHLX Semiconductor Index SOX, the S&P Composite 1500 XX:SP1500 or MSCI World Index XX:990100. This group of 25 stocks represents a deeper worldwide dive into this corner of the semiconductor industry.
Below are the 25 stocks sorted by how much upside potential is indicated for 2026, based on consensus price targets among analysts polled by LSEG.
The table includes percentages of "buy" or equivalent ratings among the analysts, as well as projected compound annual growth rates (CAGR) for the companies' revenue, and earnings per share from calendar 2025 through 2027 based on consensus estimates. For some of the companies, sales and/or EPS growth projections are only for 2026, since consensus 2027 estimates are not yet available. These are explained in the notes below.
(You may need to scroll the table or flip your screen to landscape view to see all of the data.)
Name 12-month upside potential implied by consensus price targets Share "buy" ratings 2-year estimated sales CAGR through 2027 2-year estimated EPS CAGR through 2027 Ultra Clean Holdings Inc. 36% 100% 11.3% 37.7% Axcelis Technologies Inc. 28% 38% 4.5% 0.7% Photronics Inc. 28% 100% 6.9% 12.5% Cohu Inc. 22% 80% 15.3% N/A ASM International N.V. 19% 76% 13.2% 18.7% PDF Solutions Inc. 17% 100% 18.3% 17.5% Entegris Inc. 15% 69% 7.1% 21.1% Veeco Instruments Inc. 13% 40% 8.4% 17.6% Disco Corp. 12% 57% 10.8% 13.5% BE Semiconductor Industries N.V. 12% 62% 35.7% 70.4% GlobalFoundries Inc. 10% 43% 7.5% 18.9% KLA Corp. 6% 41% 10.0% 13.5% Tokyo Electron Ltd. 4% 78% 9.4% 13.5% ACM Research Inc. 4% 88% 22.0% 13.6% Kulicke & Soffa Industries Inc. 3% 60% 16.5% 241.5% Teradyne Inc. 3% 72% 18.6% 36.7% Onto Innovation Inc. 2% 67% 16.6% 23.2% Screen Holdings Co. Ltd. 2% 44% 5.9% 9.8% Applied Materials Inc. 1% 65% 7.8% 11.3% ASML Holding N.V. 1% 80% 10.2% 14.6% FormFactor Inc. -1% 50% 6.9% 23.6% Lam Research Corp. -2% 70% 12.1% 16.7% Advantest Corp. -2% 70% 14.7% 24.3% Lasertec Corp. -10% 25% 5.8% 7.0% Amkor Technology Inc. -11% 46% 9.0% 35.1% Source: LSEG
Click on the tickers for more information about each company, including price ratios, estimates and financials.
Read: Tomi Kilgore's guide to the wealth of information available for free on the MarketWatch quote page
For Photronics (PLAB) and Kulicke & Soffa Industries (KLIC), the revenue and EPS projections are only for 2026. For ACM Research (ACMR), the revenue projection is a two-year CAGR, but the EPS growth projection is only for 2026. For Cohu (COHU), there is no EPS projection because the company is expected to post a net loss for 2025.
There are several stocks on the list that are highly regarded by the analysts, but whose price targets are close to the current prices. This is because analysts working for brokerage and research firms nearly all set 12-month price targets, even though that might be considered to be a short period for long-term investors.
The question of demand sustainability usually comes up at the start of a new year given the cyclical nature of the semiconductor industry. Another concern is the dynamic of having an oligopoly of semicap suppliers for a small base of buyers, Mizuho desk-based analyst Jordan Klein told MarketWatch.
Looking out into this year, however, Klein said it "is the first time in a long time that I can remember where the whole sustainability fear question is not as big a concern for investors."
That points to strong demand trends, he said. While AI demand is a driver, Klein said more complex chip designs are also helping to create upward momentum in the growth rate among semicap companies - a trend he doesn't see slowing anytime soon.
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MW This could be a better - and safer - way into -2-
Because the lead times for semiconductor capital equipment are typically six to nine months, it is necessary to look out further and anticipate what order rates and demand trends will be toward the end of the year going into 2027, Klein said. Customers are ordering in advance because of the wait times, he noted, and therefore companies such as Applied Materials, Lam and KLA have been offering "confident updates."
Meanwhile, demand for memory chips is accelerating, leading to rising prices for NAND and dynamic random-access memory, or DRAM. That demand is pressuring semiconductor manufacturers to add capacity, meaning they are placing orders sooner than expected with semicap makers.
See more: This analyst's top chip pick isn't flashy, but it could benefit from 'unprecedented' momentum
TD Cowen analyst Krish Sankar named Applied Materials as his "best idea" for 2026 in a note in December. Sankar wrote that about half of the company's customers are exposed to the demand for DRAM and to the buildout of leading-edge foundries for manufacturing advanced chips.
The other thing investors are excited about is that, eventually, Taiwan Semiconductor Manufacturing $(TSM)$ (TW:2330), Samsung Electronics (KR:005930) and Intel $(INTC)$ "will have to expand clean-room capacity and order more equipment for foundry and logic chips," Mizuho's Klein said. Nvidia, Broadcom $(AVGO)$, Advanced Micro Devices $(AMD)$ and others are ordering these types of chips in large quantities.
And investors expect to start seeing equipment orders for the sizable data-center commitments from OpenAI and other buyers, including Meta Platforms (META) and Google $(GOOGL)$ $(GOOG)$, from 2027 onward, he added.
"The focus in [the memory] sector is going to be how much new equipment is being purchased for new capacity," Klein said - adding that it's hard to determine that amount unless memory companies say whether or not they are adding capacity.
Meanwhile, he believes semicap companies have done a good job managing their supply chains coming out of the COVID-19 pandemic. None of the major equipment makers are talking about a shortage of components.
ASML is one of Klein's favorite semicap stocks going into 2026 because of its monopoly on advanced lithography equipment, which it is not allowed to sell to customers in China.
Both the investment community and analysts on the sell side who cover ASML are projecting a big recovery in growth in 2027. After a moderation in demand in 2026, a lot of chip manufacturers such as TSMC, Samsung and Intel will start ordering more lithography tools to supply more AI chips from 2027 onward, Klein said. ASML's valuation may have contracted recently, but there is reason to believe it will start expanding again in the new year, as investors start buying again in anticipation of another growth cycle.
Meanwhile, Klein said Onto Innovation (ONTO) and Teradyne $(TER)$ are two of his favorites among midcap names in the sector because of exposure to high-bandwidth memory.
Teradyne, which makes tools for testing chips, has said in recent analyst calls that it is seeing increasing orders from HBM customers, Klein noted, and he expects that to continue. There is also an expectation by more bullish investors that Teradyne will work with Nvidia as it expands its test-machine orders beyond Japan's Advantest (JP:6857) (ATEYY).
If that becomes official, it could provide a big boost to Teradyne's stock. Analysts are already anticipating a big jump in year-over-year revenue growth, to 22.3% in 2026 from an expected 8.7% in 2025 and 5.4% growth in 2024, according to FactSet data.
"Anytime an equipment company is growing over 15% to 20%, that's really impressive growth for this type of company," Klein said.
Onto, which makes chip-inspection equipment, said on its November earnings call that strength in its advanced packing business is partly from its HBM customers.
While these two names are not inexpensive, Klein said both are guiding for growth acceleration in the second half of 2026, and investors are usually looking for the best growth acceleration in the next six to 12 months.
Meanwhile, Klein added, companies and investors now have more clarity on shipping to customers in China. Demand from that market was a major growth driver for chip-equipment makers in recent years, but investors have been worried about U.S. export controls prompting companies in China to overbuy and stockpile unnecessary tools.
"That was a big overhang because China was as much as 40% to 45% of these companies' revenue, and investors were worried that it would come down to a normal rate and create a downward headwind," Klein said. "The good news is that [in 2026], the restrictions that the U.S. government put in place are already understood and known."
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