Stocks to buy

The semiconductor industry is facing unprecedented demand as the world continues to heavily rely on technology. As chipmakers scramble to meet this increasing demand, equipment suppliers are well-positioned for growth. With this in mind, let’s dive into the best semiconductor equipment stocks to buy. 

ASML (ASML)

Source: Ralf Liebhold / Shutterstock

ASML (NASDAQ:ASML) is a market leader in lithography systems. Its monopoly allows it to supply immersion systems to leading logic and memory customers. As the demand for more advanced nodes increases, this will be a medium-term demand driver for ASML.

Longer term, industry innovation will drive further demand, contributing to an annual growth rate of 9%. ASML therefore expects semiconductor revenue to double from 2020 to 2030.

To meet this demand, ASML and its partners will add capacity, adjust to future directions, and prepare for cyclicality. ASML plans to increase its capacity to 90 low-NA Extreme Ultraviolet (EUV) and 600 Deep Ultraviolet (DUV) lithography systems by 2025–2026 while ramping up its high-NA EUV capacity to 20 systems by 2027–2028. ASMLs EUV technology enables it to print patterns below 10 nanometers. This gives it the most advanced lithography machines.

In addition, ASML is already working on a new generation of lithography machines called High-NA-EUV that will allow chipmakers to make 2-nanometer processors, marking a significant milestone in chip production. Lastly, the companys bottom line will remain relatively stable amidst new restrictions on exporting equipment to China and demand from Taiwan, Europe and the U.S. will continue to grow.

Applied Materials (AMAT)

Source: michelmond / Shutterstock.com

Applied Materials (NASDAQ:AMAT) is a leader in the semiconductor industry, providing innovative solutions for wafer fabrication equipment. Recently, Applied Materials pioneered patterning technology, delivering a competitive edge to chipmakers in creating high-performance transistors and interconnect wiring with reduced steps in the EUV lithography process. This reduces the cost and complexity of advanced chipmaking, making it more accessible and environmentally friendly.

Notably, Applied Materials boasts a comprehensive range of products that speed up the PPACt playbook (power, performance, area cost and time to market), making it a dominant force in the industry. To further enhance its offerings, Applied Materials introduced a new eBeam metrology system. This system helps control the etch process and enables a feedback loop between lithography and etch for holistic process tuning.

The company also introduced two new products, the Centura Sculpta system and the VeritySEM 10 system. The Centura Sculpta system promises a simpler, faster and more cost-effective alternative to EUV double patterning. In contrast, the VeritySEM 10 system precisely measures the dimensions of semiconductor device features patterned with EUV and emerging High-NA EUV lithography. These products expand the companys opportunities in leading-edge patterning.

Despite fluctuations in earnings, Applied Materials is a growth company. As technology advances and chipmakers seek more cost-effective and environmentally friendly solutions, Applied Materials innovative product portfolio is ready to meet these needs.

Lam Research (LRCX)

Source: Michael Vi / Shutterstock

Lam Research (NASDAQ:LRCX) is a trailblazing player in the semiconductor industry, manufacturing cutting-edge wafer fabrication equipment and NAND flash memory modules. It is a leader in etching and deposition for chip production. In addition, its management has demonstrated exceptional performance, with a remarkable return on equity of 75%. Moreover, the company is one of the 2023 Worlds Most Ethical Companies by Ethnisphere, a global leader in promoting ethical business practices.

However, Lam Research is grappling with many challenges, including the White House’s policy restricting Chinese chipmakers access to advanced chips and manufacturing equipment. In addition, the semiconductor industry is highly cyclical, making customer capital expenditures highly volatile. Lam Research competes with formidable rivals such as Applied Materials and Tokyo Electron, which have invested heavily in etch technology to lessen Lams technological lead.

But Lam Research is taking proactive steps to lower its cost structure and has announced a reduction in its workforce of about 7%, with the loss of 1,300 jobs. This aligns with cuts reported throughout the chip stock universe in 2023. Despite the competitive landscape and market volatility, Lam Research has a wide economic moat due to cost advantages and intangible assets related to equipment design.

As of this writing, Yiannis Zourmpanos was long ASML. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Yiannis Zourmpanos is the founder of Yiazou Capital Research, a stock-market research platform designed to elevate the due diligence process through in-depth business analysis.

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