Shares of semiconductor equipment manufacturer Applied Materials (AMAT -0.06%) jumped this week following multiple analyst upgrades. Booming demand for artificial intelligence (AI) infrastructure, which is driving up demand for various types of chips, was ultimately behind the analyst activity. As of early Thursday afternoon, Applied Materials stock had gained about 7.6% for the week, according to data provided by S&P Global Market Intelligence.
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Analysts are growing more optimistic about Applied Materials stock
On Monday, Bank of America analysts upgraded Applied Materials stock to a buy while raising their price target to $250. The analysts expect strong growth for wafer fab equipment in 2026 thanks to investments in DRAM capacity. The boom in AI infrastructure is pushing up demand for high-bandwidth memory, a variant of DRAM, as well as for standard data center DRAM chips.
Also on Monday, Stifel rated Applied Materials as a buy and boosted its price target to $215. Stifel pointed to DRAM investments as a major positive while also noting the company's diversified product portfolio.
On Tuesday, analysts at Cantor joined the upgrade party, naming Applied Materials one of its "best ideas" among semiconductor equipment stocks. Cantor sees strong DRAM demand, aggressive NAND upgrades, and growing capital spending from TSMC as positives justifying a $250 price target for the stock.
Beware of the cycle
Applied Materials' diversification protects it to a degree from a downturn in portions of the semiconductor market. However, it should be noted that the memory chip industry, which includes DRAM and NAND, is notoriously cyclical and prone to painful busts. With much of the optimism from analysts driven by memory chip investments, investors should be aware that periods of oversupply following booms are commonplace in the industry.
Applied Materials should benefit from soaring investments in AI data centers, but when the cycle turns, demand in some parts of Applied Materials' business could drop precipitously.
