Micron surge is bullish for these other stocks, says Bank of America
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I started investing in the 1990s and joined Wall Street on the sell side in 1997. One of the first things my mentor taught me was that “semiconductors are cyclical.”
Like most good advice, I ignored it. And paid a stiff tuition learning for myself how semiconductor booms and busts impact stocks, especially memory-maker Micron, a company particularly prone to eye-popping pops and drops in good and bad times.
I couldn’t help but have my mentor’s advice ringing in my ears when I read Bank of America’s latest outlook for semiconductor stocks. The bank’s analysts painted a rosy picture, suggesting an evolving supercycle that could be a strong tailwind for semiconductor equipment and manufacturing stocks, including those tied to memory capital expenditures as Micron and rivals ramp spending to boost fab capacity.
The reason behind it all – artificial intelligence — shouldn’t surprise you. Everyone has been knee deep in AI in 2025, one way or another. Companies are researching how to use it to boost productivity and unlock insights from data siloes, and increasingly, everyday Americans are embracing it as a more robust alternative to traditional search.
The flurry of interest has sparked a gold rush of AI research and development, straining existing infrastructure and underpinning pricing for semiconductor manufacturers.
Until recently, Nvidia has been the most obvious beneficiary, with its sales soaring from $26.9 billion in 2022, when ChatGPT was released, to an estimated $213.2 billion this year. Lately, though, it’s Micron that’s arguably seeing the most substantial surge.
The company reported that revenue jumped 56% last quarter to $13.6 billion as rocketing memory spot prices impacted contract pricing. Micron’s guidance, however, was even more jaw-dropping. CEO Sanjay Mehrotra says Micron’s sales and profit will jump to $18.7 billion and $8.42 per share this quarter (it reported EPS of $4.78 last quarter).
Unsurprisingly, sky-high demand is prompting Micron to action. Recently, it abandoned its consumer business to shift capacity to supplying memory for AI data centers. It also plans to significantly boost its capital expenditures (capex) to increase production capacity — something Bank of America believes will offer tailwinds for top semiconductor equipment players, including Lam Research (LRCX), KLA Corp. (KLAC), and Applied Materials (AMAT).
Demand for high-bandwidth memory is sparking memory prices and driving interest in Micron and semi equipment manufacturers.Shutterstock
“Training is significantly and increasingly compute-intensive, but early LLM demands were manageable. Today, compute needs are accelerating rapidly, particularly as more models move into production,” wrote JP Morgan strategist Stephanie Aliaga in October. “Nvidia estimates that reasoning models answering challenging queries could require over 100 times more compute compared to single-shot inference.”
Data centers are rushing to upgrade equipment that can handle the rising demand for compute power, and their focus has expanded to include not only high-powered GPUs made by Nvidia (and Advanced Micro Devices), but also other components that can ease bottlenecks, such as memory.
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As a result, memory demand is outpacing supply, leading to a surge in spot market pricing. That’s been great news for revenue and profit growth at the biggest players — Samsung, SK Hynix, and Micron (MU) — which market DRAM (Dynamic Random Access Memory), NAND flash, and High Bandwidth Memory (HBM), a high-demand memory designed for AI applications.
The longer spot prices remain higher, the greater the pressure to order and pay more for memory, fueling speculation that a new memory supercycle is upon us.
That’s caught the attention of investors on and off Wall Street, including me (I bought some Micron shares on Nov. 26), who recognize that the boom phase of the semiconductor cycle can reward investors with handsome returns. For example, Micron’s shares are up 229% year-to-date, including a 67% rally over the past three months.
Micron is a pure play that benefits from rising memory demand. However, it’s not the only winner likely to profit from it.
Capital expenditure plans provide tailwinds for semiconductor equipment makers who sell the machines used in fabs by the industry to manufacture semiconductors.
Related: Top analyst drops eye-popping price target on Micron stock
The semiconductor equipment industry is already riding AI demand-related waves tied to Nvidia and AMD‘s GPUs, as well as in-house silicon projects at Google and Amazon, which are developing TPUs, a type of ASIC, via Broadcom and Marvell Technologies, for specific AI tasks.
It also doesn’t hurt that President Donald Trump’s trade strategy includes a major push to boost domestic technology manufacturing, sparking fab projects that will require new equipment from companies like KLA Tencor, Applied Materials, and Lam Research.
“To address tight supply-demand conditions extending beyond 2026, we now project our capital spending in fiscal 2026 to be approximately $20 billion weighted to the second half of the fiscal year,” said Micron CFO Mark Murphy during its recent earnings call.
In short, memory demand is simply the latest in a string of positive developments supporting semi equipment sales, offering opportunities for investors in 2026, according to Bank of America.
“We forecast 2026 to feature another ~30% growth towards the first $1tn for semiconductor sales, supported by nearly double-digit YoY wafer fab equipment (WFE) sales growth,” wrote Bank of America analysts in a research note to clients shared with me.
Bank of America’s analysts highlighted a slate of semiconductor plays they expect to perform well in 2026, with semiconductor equipment stocks listed alongside the familiar names of Nvidia and Broadcom.
“We continue to like semicap equipment and forecast 10%/14% YoY growth in CY26/27E towards $131bn/$150bn driven by fab upgrades to support high-bandwidth memory, higher layer count NAND, leading-edge logic (3nm/2nm) and advanced packaging,” wrote BofA analysts.
Lam Research (LRCX) Current fiscal year (2026) revenue (est): $21.3 billion Fiscal year EPS (est): $4.84 Source: Yahoo!Finance.
KLA Tencor (KLAC) Current fiscal year (2026) revenue (est): $13.1 billion Fiscal year EPS (est): $35.83 Source: Yahoo!Finance
Applied Materials (AMAT) Current fiscal year (2026) revenue (est): $28.9 billion 2025 EPS (est): $9.51 Source: Yahoo!Finance
“Semicap trading at a premium to historical multiples, but we see potential for continued EPS upgrades given consensus models’ bottom-up sales growth (6-8% annual) below our top-down WFE (10%+) forecast. China restrictions remain a key factor, but we assume the geopolitical situation to remain status quo,” wrote the analysts.
The biggest semi equipment stocks on Bank of America’s list are Lam Research (LRCX), KLA Corp. (KLAC), and Advanced Materials (AMAT).
“We expect semicaps to outperform in CY26 as upstream beneficiaries of capacity expansions and tech upgrades to support multi-year AI infra demand. We expect upside in C2H’26 and CY27 as visibility into capex plans and fab ramp timelines improves,” wrote Bank of America.
All three of those stocks have been big winners in 2025, and Bank of America expects more gains in 2026.
“As we enter the second phase of the AI buildout (CY25-28E), we think this WFE upcycle is more powerful and durable than previous ones, suggesting continued semicap outperformance in CY26,” said the analysts.
Bank of America’s lead analyst, Vivek Arya, suggested KLA is a best-in-breed stock during a recent conference call I attended, noting it’s the one stock in his coverage that he has never downgraded from a ‘buy’ rating.
Arya believes that process control, like KLA, will “gain 100 bps of share to 13% of WFE” in 2026. He also thinks etch/dep (AMAT/LRCX) “could expand to 42% of share,” up 3% since 2023. He cites NAND and HBM as contributing to gains for all three companies.
Free cash flow margins at AMAT, LRCX, and AMAT have already expanded from below 15% in 2023 to over 20%, and Arya thinks we could see FCF margins of 20% to 30% through 2028.
As a result, Bank of America recently increased its KLA Tencor price target to $1,450 from $1,400 and its Lam Research stock price objective to $195 from $165.
Bank of America also rates Applied Materials a “buy” with a stock price target of $300, up from $250 previously.
Oh, and as for Micron, they upped their target to $300 from $250 on Dec. 18 after results prompted them to ratchet their 2026 earnings estimate 62% higher to $37.25, a whopping 230% above 2025 forecasts.
Related: Bank of America resets Micron stock price target, rating
