Morgan Stanley Upgrades Applied Materials and Lam Research, Downgrades KLA.

Morgan Stanley upgraded Applied Materials to Overweight and Lam Research to Equal-weight, while downgrading KLA to Equal-weight. The bank also revised its 2026 Wafer Fab Equipment market forecast. Applied Materials' shares rose about 2%, while Lam Research increased by a similar amount.

September 12, 2025

In a significant move, Morgan Stanley upgraded Applied Materials (NASDAQ:AMAT) to Overweight and Lam Research (NASDAQ:LRCX) to Equal-weight, while downgrading KLA (NASDAQ:KLAC) to Equal-weight. The financial institution also revised its 2026 Wafer Fab Equipment (WFE) market forecast, indicating a more optimistic outlook for the industry Applied Materials, Lam Research get rating upgrades, while KLA cut at Morgan Stanley^[1].

Shane Brett, the lead analyst at Morgan Stanley, highlighted that the WFE market forecast has been revised to $128 billion in 2026, a 10% year-over-year increase from the previous estimate of $122 billion. The forecast was primarily driven by a significant increase in memory segment projections, with DRAM and NAND forecasts revised upward Applied Materials, Lam Research get rating upgrades, while KLA cut at Morgan Stanley^[1].

Applied Materials' shares rose about 2% premarket, while Lam Research gained about 1% on the news. Morgan Stanley upgraded Applied Materials to Overweight from Equal-weight, increasing the price target to $209 from $172. The analysts cited the current 25% discount to Lam Research (NASDAQ:LRCX) versus the 10% average discount since 2023 as a key factor in the upgrade, along with the potential for China and leading-edge logic to derisk the investment Applied Materials, Lam Research get rating upgrades, while KLA cut at Morgan Stanley^[1].

Lam Research was also upgraded to Equal-weight from Underweight, with the price target raised to $125 from $92. The analysts noted that memory end markets have improved, and they have raised their 2026 EPS forecast to $5.43 from $5.12. They expect Lam Research to outperform the WFE market for the third consecutive year, with a 15% growth rate compared to the 10% market growth rate Applied Materials, Lam Research get rating upgrades, while KLA cut at Morgan Stanley^[1].

KLA, however, faced a downgrade to Equal-weight from Morgan Stanley. The analysts cited the company's 30% valuation premium over Applied Materials and Lam Research as a reason for the downgrade, despite strong operational performance driven by growth in TSMC, DRAM, and advanced packaging Applied Materials, Lam Research get rating upgrades, while KLA cut at Morgan Stanley^[1].