This could be a better - and safer - way into the AI trade in 2026

By Britney Nguyen and Philip van Doorn

Analysts' favorites among providers of manufacturing and testing equipment for chip makers include Applied Materials and ASML

Investors might be well served to look beyond chip makers to the companies that make manufacturing and testing equipment for the semiconductor industry.

Some investors may need to be reminded that the semiconductor industry is cyclical. And after several years of incredible gains for shares of dominant chip makers amid the boom in generative artificial intelligence, it might be best to steer clear of competition at the top - and focus more on companies that provide essential equipment and services to semiconductor manufacturers.

Nvidia (NVDA) is now the largest stock within the S&P 500 SPX, with a market capitalization of $4.6 trillion. It makes up 7.7% of the SPDR S&P 500 ETF Trust SPY. If you are a U.S. investor who likes index funds, chances are that you have a lot of money indirectly invested in Nvidia.

For U.S. investors, the best-known providers of specialized manufacturing and testing equipment and related services to chip makers are probably ASML Holding (ASML), Lam Research (LRCX) and Applied Materials (AMAT).

No matter which of Nvidia's competitors are able to take significant share of the market for semiconductors that support generative-AI technology, these semiconductor capital equipment, or semicap, makers should benefit as the AI buildout continues.

Also read: Tech's biggest bull lists his top 5 AI stocks for 2026, and Nvidia isn't one of them

So we thought it would be useful to present some data related to this group of companies to help long-term investors with their research.

There are 25 companies in the "semiconductor equipment and testing" industry group, as determined by LSEG, among stocks in the PHLX Semiconductor Index SOX, the S&P Composite 1500 XX:SP1500 or MSCI World Index XX:990100. This group of 25 stocks represents a deeper worldwide dive into this corner of the semiconductor industry.

Below are the 25 stocks sorted by how much upside potential is indicated for 2026, based on consensus price targets among analysts polled by LSEG.

The table includes percentages of "buy" or equivalent ratings among the analysts, as well as projected compound annual growth rates (CAGR) for the companies' revenue, and earnings per share from calendar 2025 through 2027 based on consensus estimates. For some of the companies, sales and/or EPS growth projections are only for 2026, since consensus 2027 estimates are not yet available. These are explained in the notes below.

(You may need to scroll the table or flip your screen to landscape view to see all of the data.)

   Name                                 12-month upside potential implied by consensus price targets  Share "buy" ratings  2-year estimated sales CAGR through 2027  2-year estimated EPS CAGR through 2027 
   Ultra Clean Holdings Inc.                                                                     36%                 100%                                     11.3%                                   37.7% 
   Axcelis Technologies Inc.                                                                     28%                  38%                                      4.5%                                    0.7% 
   Photronics Inc.                                                                               28%                 100%                                      6.9%                                   12.5% 
   Cohu Inc.                                                                                     22%                  80%                                     15.3%                                     N/A 
   ASM International N.V.                                                                        19%                  76%                                     13.2%                                   18.7% 
   PDF Solutions Inc.                                                                            17%                 100%                                     18.3%                                   17.5% 
   Entegris Inc.                                                                                 15%                  69%                                      7.1%                                   21.1% 
   Veeco Instruments Inc.                                                                        13%                  40%                                      8.4%                                   17.6% 
   Disco Corp.                                                                                   12%                  57%                                     10.8%                                   13.5% 
   BE Semiconductor Industries N.V.                                                              12%                  62%                                     35.7%                                   70.4% 
   GlobalFoundries Inc.                                                                          10%                  43%                                      7.5%                                   18.9% 
   KLA Corp.                                                                                      6%                  41%                                     10.0%                                   13.5% 
   Tokyo Electron Ltd.                                                                            4%                  78%                                      9.4%                                   13.5% 
   ACM Research Inc.                                                                              4%                  88%                                     22.0%                                   13.6% 
   Kulicke & Soffa Industries Inc.                                                                3%                  60%                                     16.5%                                  241.5% 
   Teradyne Inc.                                                                                  3%                  72%                                     18.6%                                   36.7% 
   Onto Innovation Inc.                                                                           2%                  67%                                     16.6%                                   23.2% 
   Screen Holdings Co. Ltd.                                                                       2%                  44%                                      5.9%                                    9.8% 
   Applied Materials Inc.                                                                         1%                  65%                                      7.8%                                   11.3% 
   ASML Holding N.V.                                                                              1%                  80%                                     10.2%                                   14.6% 
   FormFactor Inc.                                                                               -1%                  50%                                      6.9%                                   23.6% 
   Lam Research Corp.                                                                            -2%                  70%                                     12.1%                                   16.7% 
   Advantest Corp.                                                                               -2%                  70%                                     14.7%                                   24.3% 
   Lasertec Corp.                                                                               -10%                  25%                                      5.8%                                    7.0% 
   Amkor Technology Inc.                                                                        -11%                  46%                                      9.0%                                   35.1% 
                                                                                                                                                                                               Source: LSEG 

Click on the tickers for more information about each company, including price ratios, estimates and financials.

Read: Tomi Kilgore's guide to the wealth of information available for free on the MarketWatch quote page

For Photronics (PLAB) and Kulicke & Soffa Industries (KLIC), the revenue and EPS projections are only for 2026. For ACM Research (ACMR), the revenue projection is a two-year CAGR, but the EPS growth projection is only for 2026. For Cohu (COHU), there is no EPS projection because the company is expected to post a net loss for 2025.

There are several stocks on the list that are highly regarded by the analysts, but whose price targets are close to the current prices. This is because analysts working for brokerage and research firms nearly all set 12-month price targets, even though that might be considered to be a short period for long-term investors.

The question of demand sustainability usually comes up at the start of a new year given the cyclical nature of the semiconductor industry. Another concern is the dynamic of having an oligopoly of semicap suppliers for a small base of buyers, Mizuho desk-based analyst Jordan Klein told MarketWatch.

Looking out into this year, however, Klein said it "is the first time in a long time that I can remember where the whole sustainability fear question is not as big a concern for investors."

That points to strong demand trends, he said. While AI demand is a driver, Klein said more complex chip designs are also helping to create upward momentum in the growth rate among semicap companies - a trend he doesn't see slowing anytime soon.

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01-03-26 0900ET