BofA reiterates buy on KLA, Applied Materials, Lam Research as CHIPS Act helps optimism
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KLA Corp. (NASDAQ:KLAC), Applied Materials (NASDAQ:AMAT) and Lam Research (NASDAQ:LRCX) rose on Monday as Bank of America reiterated its buy rating on the semiconductor equipment companies, noting optimism from Lam Research's recent report and optimism surrounding the CHIPS Act.
Analyst Vivek Arya noted that even with risks relating to the export controls to China and the ongoing weakening to the semiconductor cycle, capital equipment companies should benefit from some long-term tailwinds. 
"We expect [wafer fab equipment] intensity to dip to 13.4% in 2023 (China restrictions), but then recover to 14% in 2024 (benefits of CHIPS Act + cycle recovery), and eventually head back towards its 15-17% range of 2021 and 2022 as equipment demand is redirected to other geographies/customers," Arya wrote in a note to clients. 
Arya noted that he now expects wafer fab equipment spending to be $70B, down from a prior estimate of $77B, due in part to the recent restrictions placed on the sector by the Biden Administration.
As a result, he lowered 2023 estimates on KLA Corp. (KLAC) and Applied Materials (AMAT).
Looking ahead, Arya expects the sector to recover from the restrictions as the last set of China restrictions were focused on Huawei and they were "fully absorbed" in two to three years. As such, there could be a boost in wafer fab equipment spending to be between $90B and $100B by 2025, assuming no "major" demand destruction from the ongoing spat between the U.S. and China. 
Additionally, there is roughly $100B in government spending from both the U.S. and Europe through 2030, as well as $10B from Japan and Korea's investment tax credits that could help replace or redirect the lost $5B to $7B in wafer fab equipment spending demand.
As such, Arya noted that semiconductor equipment companies could be the "last-in, first-out" mantra for investors and given their "attractive valuation" and strong results from ASML Holding (ASML) and Lam Research (LRCX), they could see strength into an eventual recovery.
On Friday, investment firm New Street Research upgraded Applied Materials (AMAT) and ASML Holding (ASML), noting that the pain for semiconductor capital equipment makers should end soon.