With the second quarter underway and first-quarter earnings starting to pour in, many across Wall Street are beginning to look at the best avenues for the rest of 2021. One industry that looks like a sure winner is semiconductor capital equipment, and with good reason. For the third time in recent months, Goldman Sachs has raised its estimates on wafer fabrication equipment (WFE), which are machines that make and process semiconductors.
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Goldman Sachs expects this market to grow 22% year over year in 2021 and 10% in 2022, with 2021 sales of a massive $71 billion and 2022 sales of $78 billion. The analysts revised price targets and the research report said this:

We update estimates and 12-month price targets across our Semiconductor Capital Equipment and Semiconductor Materials coverage universe, as we account for recent industry checks (i.e. universally positive) and the improved WFE market outlook. Note our updated estimates are, for the most part, above FactSet consensus, which we expect to trend higher over the next few months as the market digests first quarter 2021 earnings season and positive data points related to customer spending (i.e. continued tightness in supply, increased evidence of growing government support, etc.).

Goldman Sachs has four top stocks are rated Buy, and they are very attractive additions for aggressive growth investors looking to add positions to this fast-growing industry. Remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Applied Materials

This is a premier semiconductor capital equipment stock. Applied Materials Inc. (NASDAQ: AMAT) provides manufacturing equipment, services and software to the semiconductor, display and related industries. It operates through three segments.

The Semiconductor Systems segment develops, manufactures and sells various manufacturing equipment that is used to fabricate semiconductor chips or integrated circuits. This segment also offers various technologies, including epitaxy, ion implantation, oxidation/nitridation, rapid thermal processing, physical vapor deposition, chemical vapor deposition, chemical mechanical planarization, electrochemical deposition, atomic layer deposition, etching and selective deposition and removal, as well as metrology and inspection tools.

The Applied Global Services segment provides integrated solutions to optimize equipment and fab performance and productivity comprising spares, upgrades, services, remanufactured earlier generation equipment and factory automation software for semiconductor, display and other products.

The Display and Adjacent Markets segment offers products for manufacturing liquid crystal displays, organic light-emitting diodes and other display technologies for TVs, monitors, laptops, personal computers, electronic tablets, smartphones and other consumer-oriented devices, as well as equipment for processing flexible substrates.

Investors receive just a 0.72% dividend. Goldman Sachs raised the price target to $151 from $133. The Wall Street consensus target is in line at $133.75. Applied Materials stock has drifted lower this month and recently slipped below $134 a share.

Entegris

This outstanding mid-cap play has seen some very solid insider buying over the past year. Entegris Inc. (NASDAQ: ENTG) engages in the development, manufacture and supply of specialty materials for the microelectronics industry.

Entegris operates through these business segments:

• Specialty Chemicals and Engineered Materials provides purity process chemistries, gases and materials and delivery systems to support semiconductor and other advanced manufacturing processes.
• Advanced Materials Handling develops solutions to monitor, protect, transport and deliver critical liquid chemistries and substrates for a broad set of applications in the semiconductor industry and other high-technology industries.
• Microcontamination Control segment offers solutions to purify critical liquid chemistries and gases used in semiconductor manufacturing processes and other high-technology industries.

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Entegris shareholders receive a tiny 0.26% dividend. The $116 Goldman Sachs price target was raised to $129, above the $125 consensus target. The shares have traded around $120 apiece recently.

Lam Research

This remains a top chip equipment pick across Wall Street. Lam Research Corp. (NASDAQ: LRCX) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits worldwide.

The company offers ALTUS systems to deposit conformal films for tungsten metallization applications, SABRE electrochemical deposition products for copper damascene manufacturing, SOLA ultraviolet thermal processing products for film treatments and VECTOR plasma-enhanced chemical vapor deposition atomic layer deposition products.

It also provides SPEED gapfill high-density plasma chemical vapor deposition products and Striker single-wafer atomic layer deposition products that provide multiple dielectric film solutions. In addition, the company offers Flex for dielectric etch applications, Kiyo for conductor etch applications, Syndion for through-silicon via etch applications and Versys metal products for metal etch processes.

Lam Research’s Coronus bevel clean products enhance die yield. Its Da Vinci, DV-Prime, EOS and SP address a range of wafer cleaning applications, and Metryx mass metrology systems offer high precision in-line mass measurement in semiconductor wafer manufacturing.

Investors receive a 0.81% dividend. Goldman Sachs hiked its $616 price target to $672, well above the $592.43 consensus target. Lam Research stock has been trading near $650 a share.

Teradyne

This lesser-known semiconductor capital equipment leader also could have solid upside potential. Teradyne Inc. (NYSE: TER) is a supplier of automation equipment for test and industrial applications.

The company designs automatic test systems used to test semiconductors, wireless products, data storage and electronic systems in the consumer, wireless, auto, industrial, computing, communications and aerospace/defense markets. Industrial automation products include collaborative robots used by global manufacturing and light industrial customers to improve manufacturing efficiency and reduce costs.

Many analysts on Wall Street point to the company as a somewhat ancillary play to the sector and have often cited the growing robotics silo as more of a reason to own the shares than the fundamentals related to WFE. The company also has consistently bought back its shares a huge positive for shareholders.

The Goldman Sachs price target on Teradyne stock was lifted to $157 from $146. The $112.79 consensus target is below the recent share price near $131.

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These four top companies are executing well and their stocks look to have very solid upside to the Goldman Sachs price targets. They are better suited for investors with a somewhat higher risk tolerance, as they could be a touch more volatile given the solid runs they have made. With that noted, the industry looks poised to continue massive growth this year and next.

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