Investors Who Have Been Following AI Chips and Memory Chips May Be Forgetting About the Vital Industry That Enables Both of Them
Key Points
Demand for AI and memory chips has increased the demand for semiconductor equipment.
As chips get more advanced, equipment turnover increases, which leads to higher sales for equipment makers.
These three stocks are positioned at the center of this opportunity and have outperformed some of the biggest chipmakers this year.
- 10 stocks we like better than Applied Materials ›
AI chips and memory chips have been two of the hottest AI sectors, but focusing exclusively on chips may cause investors to miss out on another big opportunity in the artificial intelligence (AI) industry.
While tech giants continue to line up and pay higher prices for these chips, chipmakers need specialized semiconductor equipment to meet demand. Without this equipment, it is impossible to create the same chips that are in such high demand.
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Some semiconductor equipment companies have been outperforming chipmakers this year thanks to rising demand and limited focus on individual stocks. These are some of the top semiconductor equipment makers that are the bedrock for the entire chip industry.
Image source: Getty Images.
Applied Materials
Applied Materials (NASDAQ: AMAT) is a leading semiconductor equipment maker that reported "unprecedented demand" for its materials engineering solutions. It has R&D partnerships with leading chipmakers and universities to help the company create equipment for the next generation of chips. As these investments take shape, the company continues to deliver meaningful revenue growth.
Sales surged by 25% year over year in its fiscal 2026 third quarter ended July 26, as the company expanded its gross margins for the 13th consecutive quarter. That type of pricing power should continue as AI tailwinds accelerate.
Samsung (OTC: SSNLF) is a long-term customer that is part of Applied Materials' R&D efforts. The former locked in 70% of its memory chip supply with tech leaders through 2031. Samsung will need Applied Materials' equipment to create all of those chips, which makes revenue visible for years.
It's no wonder Applied Materials Chief Executive Officer Gary Dickerson said that the company "expect[s] another strong growth year for [the company] in 2027." Applied Materials is aiming for $10.25 billion in fiscal 2026 fourth-quarter revenue, which represents more than a 12% sequential growth rate.
Lam Research
Lam Research (NASDAQ: LRCX) has surged by more than 70% this year, soundly outperforming chipmakers Nvidia (NASDAQ: NVDA) and Broadcom (NASDAQ: AVGO), which both happen to be customers. Lam Research's advanced wafer fabrication equipment is a major enabler of AI chips.
As AI chips get more advanced, turnover for Lam Research's equipment increases. A faster turnover translates into more product sales and higher revenue growth. It's the complete opposite of the auto industry, where people are holding on to their vehicles for as long as possible, limiting automobile companies' growth rates.
Lam Research has seen this phenomenon in its financial results. Revenue increased by 15% sequentially, driven by increased demand for AI chips, which necessitates more semiconductor equipment. The projected midpoint of $8.1 billion in Q3 revenue implies 21% sequential growth.
Cohu
Applied Materials and Lam Research are well-established semiconductor equipment companies with market caps approaching $400 billion. Cohu (NASDAQ: COHU) is a much smaller company with a market cap of about $2.5 billion that is posting high growth rates for its chip testing equipment.
With that equipment, chipmakers and hyperscalers can ensure that the chips they sell work properly before customers receive them. Naturally, the soaring demand for AI chips has increased demand for Cohu's equipment.
The company posted 38% year-over-year revenue growth in the second quarter and raised its annual AI-driven compute opportunity pipeline to about $850 million. Q3 sales are forecast to rise to $170 million at the midpoint, marking a gain of more than 12% sequentially.
Cohu has also widened its margins meaningfully during this stretch. A $16.9 million net loss in Q2 2025 narrowed to a $0.2 million net loss in the most recent quarter. This improvement, combined with the broader semiconductor opportunity, suggests that Cohu can achieve profitability and quickly improves its margins. With its AI-driven compute opportunity, surging profits can warrant an a higher valuation.
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Marc Guberti has positions in Broadcom. The Motley Fool has positions in and recommends Applied Materials, Broadcom, Lam Research, and Nvidia. The Motley Fool has a disclosure policy.
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