Dj Masayoshi Son Hammers Out High-Tech Factories Plan With White House

By Britney Nguyen

Applied Materials should benefit from upcycles in both the DRAM and leading-edge foundry industries, TD Cowen says

TD Cowen analysts named Applied Materials' stock as their "best idea" for 2026.

Applied Materials' stock was named as one analyst's "best idea" for next year, thanks to the company's exposure to two industries undergoing strong growth and the potential that analysts will boost their forecasts for the company.

About half of the semiconductor capital-equipment company's (AMAT) chip customers are exposed to dynamic random-access memory, or DRAM, and leading-edge foundry industries, TD Cowen analyst Krish Sankar said. The artificial-intelligence boom is driving demand for memory components such as DRAM, and has sparked a build-out of leading-edge foundries, which manufacture advanced chips.

The DRAM industry's typical boom-and-bust cycle "is becoming less volatile," Sankar said, noting that 2026 will be the fourth year in a row that DRAM wafer fab equipment, or WFE, experiences growth - a feat he called "unprecedented." Wafer fab equipment for manufacturing DRAM makes up about 30% of the semiconductor systems made by Applied Materials, he said.

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The TD Cowen team is modeling 17% growth for that segment, excluding China, in 2026, and they see potential for 20% upside. Sankar noted that when DRAM gross margins for suppliers such as Micron Technology (MU) reached 60% in 2018, industry DRAM WFE saw growth of more than 80% before hitting a correction the following year from challenges in the macroeconomic environment.

Sankar said there could be a case where equipment for another type of memory, known as NAND, sees more growth in the next two years - but he doesn't see that in the intermediate term, since suppliers of NAND are not adding capacity. And there are "multiple greenfield projects in DRAM" under way, Sankar said, pointing to new chip-fabrication plants being built by top memory players Samsung Electronics (KR:005930), Micron and SK Hynix (KR:000660).

Investors may be wary of a 32x price-to-earnings ratio for Applied Materials, given fears that DRAM WFE could peak in 2026, Sankar said, but "investors still underappreciate the uniqueness of" the current memory cycle.

For one, the memory market is seeing demand-driven shortages due to test-time scaling, he said, which is the process of AI models using more compute power during inferencing to generate more complex and accurate answers. The rise of reasoning AI models is making "memory content a necessity not a luxury," Sankar said.

Additionally, memory-chip makers are seeing profitability "at an all-time high" due to shortages, Sankar said. Micron could see gross margins of more than 70% next year, and keep its gross margins "at healthy levels" going into 2027, he said.

Read: The memory boom has been great for Micron - but could hurt these other tech stocks

Meanwhile, the leading-edge foundry industry is in a midcycle position, and TD Cowen is modeling 15% growth next year "that is second half weighted," Sankar said.

While he said it's still too early to determine what growth will look like in 2027, conversations with industry insiders "indicate that it will be a stronger investment year."

Leading-edge foundries are currently at full capacity, Sankar said, and "multiple cleanroom projects coming online at" Taiwan Semiconductor Manufacturing Company (TW:2330), as well as a chip deal between Samsung and Tesla (TSLA), will serve as tailwinds.

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Applied Materials' stock was up more than 1.1% on Thursday morning, and on track to reach an all-time closing high, according to Dow Jones Market Data.

-Britney Nguyen

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

Cambricon Technologies Corp plans to more than triple its production of AI chips in 2026, aiming to wrest market share from Huawei Technologies Co. in China and fill a void left by Nvidia Corp.’s forced exit. The Beijing-based company is preparing to deliver half a million artificial intelligence accelerators in 2026, people familiar with the matter said.

That includes as many as 300,000 units of its most advanced Siyuan 590 and 690 chips, the people said, asking to remain anonymous discussing private targets. The company will rely primarily on Semiconductor Manufacturing International Corp.’s latest production process, known as “N+2” 7-nanometer, the people said.

The ramp-up at Cambricon underscores the rapid ascent of Chinese chipmakers after Beijing began actively discouraging the use of Nvidia’s product this year, part of a longer-term effort to wean the country off US technology. Huawei is also preparing to double the output of its most advanced artificial intelligence chips over the next year. And up-and-comer Moore Threads Technology Co. debuts Friday in Shanghai, showcasing its own ambitions to carve out a slice of the market.

Cambricon’s shares rose 2.8% in Shanghai, extending its gains just before the market closed Thursday. SMIC’s stock rose 3.9% in Hong Kong, while rival Hua Hong Semiconductor Ltd. climbed 3.1%.

Nvidia boss Jensen Huang said in November that his company is effectively blocked from China, which would spur the rise of more domestic competition from the likes of Huawei. And while the Trump administration is considering a plan to allow the sale of its H200 cards, there’s no guarantee Beijing won’t also hinder its adoption.

Few companies have benefited as visibly from that situation as Cambricon, which reported a 14-fold surge in its revenue in the September quarter — and a nine-fold leap in market value since 2021. It’s now on track to win new orders from some of China’s biggest AI spenders, including Alibaba Group Holding Ltd. in the coming years, the people said. The chip designer already counts ByteDance Ltd. as a primary customer, which accounts for more than 50% of all Cambricon’s orders right now, the people said.

Alibaba, ByteDance, Cambricon and SMIC representatives did not respond to emailed requests for comment.

Whether Cambricon will hit those targets depends in large part on not just the pace of AI development, but also its ability to secure capacity at SMIC — at a time Huawei and other rivals are also vying to place orders with China’s most advanced chipmaker.

For context, Cambricon will build just 142,000 AI chips this year, Goldman Sachs estimates. SMIC’s own technology may prove an obstacle. When it comes to Cambricon’s top-of-the-line 590 and 690 chips, the company is, for now, managing yields of just 20%, the people said.

That means about 4 out of 5 silicon dies — the basic components of a full chipset — are considered flawed and unusable. The top global contract chipmaker, Taiwan Semiconductor Manufacturing Co., now has an estimated yield of at least 60% with its latest 2-nanometer process, which is three generations or seven years ahead of SMIC’s technology, according to some analysts.

Another potential bottleneck is the supply of the high-bandwidth memory chips required to make AI accelerators. That technology remains a challenge for Chinese companies, which is why Huawei’s latest 910C AI accelerators still rely on memory chips from SK Hynix Inc. and Samsung Electronics Co.

Foreign investors may shift more funds toward India as the popular Artificial Intelligence (AI) trade in the US, Taiwan and Korea appears stretched, according to Harald van der Linde, Head of Asia Equity Strategy at HSBC.

“I think the AI story can continue,” van der Linde said, but he noted that positioning in key semiconductor markets has become heavy. Stocks such as SK Hynix and Taiwan Semiconductor Manufacturing Company (TSMC) are already large positions in major Asian and emerging market portfolios. Investors may now ask “how much more can you really buy?” he said, which could open the door for more capital to move to other Asian markets.

India could be a key beneficiary. “My suspicion is that as we go into 2026, that foreign investors increasingly going to put India back onto their radar screens,” van der Linde said. He pointed out that Indian equity valuations have become more attractive after the market cooled over the past 18 months, particularly when measured in US dollar terms due to the weaker rupee. As a result, “India is clearly starting to offer good value,” he added.

Currency dynamics could support the shift. The US Federal Reserve has not yet cut interest rates, while India has entered a rate-cutting cycle. If the US starts to ease policy, possibly later this year or in 2026, it could limit further rupee weakness. Van der Linde said foreign investors may then feel “it’s not so bad to go back into India and have that rupee exposure,” along with better entry prices for Indian stocks.

Global monetary policy remains an important factor for market flows. A new US Fed Chair is expected to continue rate cuts, although van der Linde cautioned against aggressive moves that could repeat inflation problems seen in the 1970s.

Japan’s interest rate path may also influence Asia’s investment outlook. Japan is one of the few major economies raising rates due to a tight labour market. A stronger yen may not support Japanese equities but could push Japanese and Korean savers to redirect money elsewhere in the region. Van der Linde said this combination of US easing and Japan tightening could help India attract more foreign capital as 2026 approaches.