So far, 2026 is proving to be a challenging year for investors hoping the three-year bull market rally can continue. The S&P 500 index is essentially flat for the year and many sectors are in the red year to date.
But there's one index group in which every stock is up by double-digits and four of the group's five stocks are up more than 25% since Jan. 1. I'm talking about the S&P 500 Semiconductor Equipment & Materials index group. These are companies that supply complex fabrication and test equipment to semiconductor and related industries around the world. Here are the five companies in the group and their performance year to date (since Jan. 1).
Applied Materials (AMAT +1.16%), up 26.6% in 2026.
Lam Research (LRCX 1.25%), up 33.4%
KLA (KLAC +0.85%), up 25.1%
Teradyne (TER 0.03%), up 19.8%
Qnity Electronics (Q 2.68%), up 25.8%
So, what's going on with these stocks? Well, unlike highflying chipmaker stocks like Nvidia and Advanced Micro Devices, these companies don't make artificial intelligence (AI) chips. Instead, they manufacture the systems used to produce most new chips and advanced displays globally. That makes them the ultimate AI pick-and-shovel play.
For example, most of the world's largest semiconductor manufacturers are Applied Materials customers. That includes Nvidia, Intel, Samsung Electronics, Taiwan Semiconductor Manufacturing, Broadcom, ASML Holding, Micron Technology , and Texas Instruments. And there are many, many more.
Semiconductor sales are forecast to soar in coming years
And semiconductor sales are poised for record-breaking growth. The semiconductor industry was valued at between $630 billion and $680 billion in 2024 and analysts expect that to rise to as much as $1.1 trillion by 2030. Most of that growth will be driven by the massive growth of AI and data centers.
A recent report by McKinsey, however, says those estimates might be significantly underestimating the industry's true worth. McKinsey predicts the value by 2030 will be between $1.5 trillion and $1.8 trillion.
Image source: Getty Images.
Chipmakers are increasing capex estimates
And chipmakers are ramping up their capital expenditures on equipment. This month, Taiwan Semiconductor announced plans to spend between $52 billion and $56 billion on equipment and other capex in 2026, up from the $41 billion it spent in 2025. The company also raised capex expectations for the next three years.
The new estimates blew analyst expectations out of the water. And they indicate that companies like TSMC will need more machines to manufacture advanced semiconductors. TSMC is the second-largest semiconductor stock on the planet by market cap, exceeded only by Nvidia. In addition, in exchange for lower tariffs on goods it exports, Taiwan has announced it will invest at least $250 billion in semiconductor and technology manufacturing in the U.S.
The Jan. 15 capex announcement by TSMC gave four of the five S&P 500 semiconductor equipment stocks a big boost last week. Applied Materials' share price rose 8%, Lam Research climbed 7%, KLA rose 6%, and Teradyne climbed 3%. That announcement is hardly an outlier. In fact, it looks a lot more like an industry trend. Nvidia's capital expenditures are expected to rise from $3.2 billion last year to about $6.2 billion this year and $7.6 billion in 2027.
NASDAQ: AMAT
Key Data Points
If chipmakers are planning to ramp up spending on equipment and machinery that aggressively, it bodes very well for the equipment and materials makers who supply it. That means that if you believe the AI buildout will continue -- as I do -- then Applied Materials and other semiconductor fabrication and testing equipment stocks are set to soar in the near term. Each is worth an investment right now.
