According to Zhitong Finance APP, Morgan Stanley has adjusted its ratings for three core semiconductor equipment stocks while revising its 2026 wafer fabrication equipment (WFE) market forecast: it raised the rating for Applied Materials (AMAT.US) to &#34;Overweight,&#34; raised the rating for Lam Research (LRCX.US) to &#34;Equal-weight,&#34; and lowered the rating for KLA (KLAC.US) to &#34;Equal-weight.&#34;
In pre-market trading on Monday, Applied Materials' stock price rose about 2%, Lam Research increased about 1%, while KLA's stock price fell nearly 2%.
2026 WFE Market Forecast Raised, Storage Equipment as Core Driver
The analyst team led by Shane Brett stated that they have raised the forecast for the global WFE market size in 2026 from $122 billion (a year-on-year increase of 5%) to $128 billion (a year-on-year increase of 10%). They noted that this increase is almost entirely driven by the storage equipment sector—the current benchmark forecast for storage equipment WFE ($48.7 billion) is close to the previous optimistic forecast ($50 billion).
Specifically, the analysts raised the 2026 forecast for dynamic random-access memory (DRAM) related WFE to $34.9 billion, nearing the optimistic expectation of $35 billion; they raised the NAND flash related WFE forecast to $13.8 billion, slightly below the optimistic expectation of $15 billion.
Brett's team analyzed that the strengthening of DRAM prices is likely to translate into more aggressive DRAM capital expenditure (capex) plans; however, improvements in NAND flash capital expenditures may experience some lag—partly because some capital expenditures will tilt towards DRAM, and partly because storage manufacturers wish to maintain more prudent capital discipline.
Applied Materials: Significant Valuation Discount, Outstanding Growth Potential
Morgan Stanley upgraded Applied Materials' rating from &#34;Equal-weight&#34; to &#34;Overweight&#34; and raised the target stock price from $172 to $209.
The analyst team stated: &#34;Currently, Applied Materials' valuation is 25% lower than Lam Research, while the average valuation gap between the two has only been 10% since 2023; our newly set target price implies that this discount will narrow to 15%. From a market sentiment perspective, the ratio of optimistic to pessimistic expectations for this stock is 3:1, and among the targets we cover, Applied Materials has the highest earnings elasticity on new DRAM wafer fab projects.
Additionally, we believe that the risks in the Chinese market, the 'ICAPS sector' (Internet of Things, communications, automotive, power semiconductors, sensors), and advanced process logic chip business have significantly decreased, thus judging that the risk-reward ratio for this stock leans towards optimism.&#34;
At the same time, the analysts raised the 2026 earnings per share (EPS) forecast for Applied Materials from $9.58 to $10.45
Lam Research: Storage Market Rebounds, Rating Upgraded but Still Cautious
Analysts have upgraded Lam Research's rating from &#34;Underweight&#34; to &#34;Neutral&#34; and raised the target stock price from $92 to $125.
They admitted that their previous judgment on the storage terminal market was flawed, and the storage market has clearly rebounded; therefore, they have raised Lam Research's 2026 EPS forecast from $5.12 to $5.43.
Analysts added, &#34;Although we still predict a 3% decline in WFE demand in the Chinese market in 2026, we have now raised the NAND-related WFE demand forecast (up 34% year-on-year) and the non-China region logic chip WFE demand forecast (up 16% year-on-year). We expect Lam Research's performance to outperform the overall WFE industry for the third consecutive year (growth rate of 15% vs industry 10%).&#34;
However, analysts also pointed out that to be more optimistic about the stock's upside potential, its revenue needs to reach $24 billion and EPS needs to reach $6, so the current rating remains &#34;Neutral.&#34;
KLA: Strong Fundamentals but High Valuation, Relative Return Advantage in Doubt
The Brett team stated, &#34;KLA's operating conditions have continued to improve this year, with strong performance in its core growth drivers, TSMC (TSM.US), DRAM business, and advanced packaging business. However, KLA's valuation is currently 30% higher than that of Applied Materials and Lam Research, and we believe its subsequent relative return advantage is difficult to sustain.&#34;
Nevertheless, analysts have raised KLA's 2026 EPS forecast from $37.11 to $39.03, reflecting recognition of its fundamentals

AMAT

KLAC

Morgan Stanley has adjusted its ratings on three core semiconductor equipment stocks: Applied Materials' rating has been upgraded to "Overweight," Lam Research's rating has been upgraded to "Neutral," and KLA's rating has been downgraded to "Neutral." At the same time, the forecast for the wafer fabrication equipment market in 2026 has been raised from $122 billion to $128 billion, primarily driven by storage equipment. Analysts expect the market size for DRAM and NAND flash-related WFE to reach $34.9 billion and $13.8 billion, respectively

Zhitong

Applied Materials

Morgan Stanley's latest ratings for semiconductor equipment stocks are out: Applied Materials and Lam Research have been upgraded, while KLA has been downgraded