Buy the dip: Applied Materials, Lam Research, Entegris top picks, Citi says
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Chip equipment stocks have pulled back sharply in recent weeks, falling 14% year-to-date, compared to an 8% decline for the S&P 500, but Citi said stocks like Applied Materials (NASDAQ:AMAT), Lam Research (NASDAQ:LRCX), Entegris (NASDAQ:ENTG) and FormFactor (NASDAQ:FORM) should be bought.

Analyst Atif Malik noted that these stocks are likely to benefit due to "secular growth drivers" such as 3D devices, advanced packaging and government spending help spending on wafer fabrication equipment reach $100 billion by 2025.
"We are buyers of dips in the group as stocks are increasingly discounting both our $80B 2023 through WFE and negative impact to P/E valuations from rising yields," Malik wrote in a note to investors.
Malik has a buy rating on all four stocks and $175 price target on Applied Materials, a $750 price target on Lam Research, a $175 price target on Entegris and a $45 price target on FormFactor.
Applied Materials, Lam Research, Entegris and FormFactor shares are all higher in early Wednesday trading, led by Applied Materials gain of more than 3% to trade at $137.28.
Malik added that there are two ongoing debates regarding spending on wafer fabrication equipment, or WFE: whether it rises in 2023 and whether any restriction from China gets ratcheted up.
"Moreover, we believe majority of the domestic China equipment for mature nodes is not forward compatible for advanced chips and hence the impact will be low even if new rules are implemented," Malik explained.
Earlier this month, Jefferies analyst Mark Lipacis reiterated his buy rating on Applied Materials (AMAT), citing rising spending for chip equipment.