JPMorgan Names KLA as Top Pick in Chip Equipment Sector

JPMorgan has raised its forecasts for the wafer fabrication equipment market and named KLA Corp. its top pick among US chip equipment manufacturers. The bank is particularly positive on KLA's position, given that in 2027 spending will shift from memory chips toward foundry and logic segments.

JPMorgan analyst Mio Shikanai raised the WFE market's 2026 growth forecast to 31%, bringing the market size to $163 billion. For 2027, the bank forecasts 38% growth and a market size of $225 billion, while for 2028 it projects 17% growth and $263 billion. As a result, the WFE market's average annual growth rate for 2025-2028 will be 28%.

The main drivers behind the improved forecasts are DRAM memory chips and TSMC. Shikanai expects that memory chip supply will fail to meet demand even by 2028, while TSMC's latest-generation production capacity utilization will remain above 100%.

The growth in AI demand, in turn, is pushing cloud service providers to increase capital expenditures. Shikanai believes that spending by the four largest US cloud companies will grow by an average of 58% annually through 2028.

According to JPMorgan's assessment, KLA's shares offer the most attractive risk-reward ratio. The bank points to the stock's relatively weak performance since the start of the year, as well as the fact that the market is not adequately pricing in KLA's exposure to foundry- and logic-focused WFE spending in 2027.

KLA's shares have gained roughly 50% this year, though the company has lagged behind its competitors — Lam Research's shares rose about 85%, and Applied Materials' about 82%. These companies benefited more directly from increased memory chip spending.

Shikanai expects that in 2027 the structure of WFE spending will shift from memory chips toward foundry and logic segments. In his assessment, such a shift will bring greater benefit to KLA relative to its competitors.

As an additional positive factor for KLA, JPMorgan cites rising capital expenditures by customers like Intel. Higher capex budgets would give the company the opportunity to exceed current market consensus forecasts.