Meta's in-house AI chip development triggered a rally in chip equipment stocks, signaling ecosystem demand for custom silicon manufacturing capacity.
Meta Platforms revealed its intention to commence production of "Iris," a custom-designed AI processor, beginning in September. The disclosure triggered a substantial rally in semiconductor equipment manufacturers on Thursday.
Applied Materials, Lam Research, and KLA—all major suppliers of wafer fabrication equipment used to transform silicon wafers into functional microchips—experienced gains exceeding 4% during the trading session. Lumentum, which specializes in optical networking solutions, jumped 12%, ranking among the day's top S&P 500 performers. Vertiv Holdings climbed 2.8%.
When major technology firms like Meta opt to develop proprietary chip designs, it generates substantial demand for the specialized equipment these manufacturers provide. Applied Materials, Lam Research, and KLA serve as critical suppliers to semiconductor manufacturing operations. Year-to-date performance for all three companies has been remarkable, with each stock appreciating more than 90%.
Citi Research values the current wafer fab equipment market at approximately $145 billion for 2025, with projections indicating expansion to $200 billion by 2027 and ultimately reaching $250 billion in 2028. According to Citi's estimates, hyperscale cloud providers—including Meta, Amazon, Microsoft, Alphabet, and Oracle—will increase capital expenditures by 84% this year, with the group's combined spending anticipated to exceed $1.1 trillion by 2027, up from this year's $650 billion.
Stifel's research team noted that "agentic AI has steepened the demand curve for memory and logic chips," forecasting wafer fab equipment expenditures will reach $192 billion in 2027 and $225 billion by 2028.
Multiple firms upgraded price targets in response to the announcement. Mizuho Securities increased its price target for Lam Research from $380 to $400 and elevated Applied Materials' target from $540 to $650, both retaining Outperform ratings. TD Cowen significantly raised its Applied Materials price objective to $700, up from $525. Morgan Stanley maintained its $404 price target for both Lam Research and KLA, preserving Overweight ratings. Stifel boosted its price targets substantially: Applied Materials from $530 to $650, KLA from $191 to $270, and Lam Research from $325 to $425, all maintaining Buy ratings.
Morgan Stanley analyst Shane Brett indicated expectations for Lam Research to deliver fourth-quarter results exceeding consensus estimates when reported at the end of July, accompanied by upward guidance revisions. Regarding KLA, Brett expressed optimism about long-term prospects while adopting a more measured stance on near-term performance, observing that market expectations already incorporate potential earnings outperformance.
Stifel additionally increased price targets on smaller industry participants Ichor Holdings and Cohu, assigning Buy ratings to both. The semiconductor equipment sector's next significant event will be Lam Research's fourth-quarter earnings announcement, scheduled for late July.