MKSI - KLA Corp. ASML Holdings remain Wells Fargo's top semi cap stocks as firm cuts estimates

KLA Corp. ( NASDAQ: KLAC ) and ASML Holdings ( NASDAQ: ASML ) remain Wells Fargo's top semiconductor equipment stocks even as the firm cut estimates across the board, noting that the second-quarter is likely to be a "difficult setup" for the group.

A team of analysts, led by Joe Quatrochi, noted that a cyclical correction is now happening for semiconductor demand and as a result, wafer fab equipment and capital expenditure cuts are likely to happen, with the firm saying it "would be viewed constructively by investors, as we attempt to formulate a fundamental bottom."

The firm now expects wafer fab equipment sales to be $96B in 2022, down from a prior outlook of $99.2B and $91B in 2023, down 6% year-over-year.

The team also lowered estimates by an "average" of 3% across the board due to the expected decline in wafer fab equipment spending. It now has a $600 price target on ASML ( ASML ), down from a prior outlook of $750.

Regarding Lam Research ( LRCX ), the analysts left June quarter estimates unchanged, but going forward, they lowered them by 5% and lowered the price target to $460, down from $525.

KLA Corp. ( KLAC ) is still one of the firm's top picks, but they lowered 2023 and 2024 estimates to be "slightly above the Street," citing the fact they were "too aggressive." They also cut their price target to $375, down from $400.

The firm is still awaiting more detail on Applied Materials ( AMAT ), including second-quarter figures and July data points, but they cut estimates by an average of 6% and lowered the price target to $110, down from $135.

They also lowered 2023 and 2024 estimates on MKS Instruments ( MKSI ), but the left the recently lowered price target of $110 unchanged.

Last month, it was reported that hedge fund Bridgewater Associates has a $1B short position against chip manufacturer ASML Holdings ( ASML ) as part of a larger $5.7B bet against European stocks .

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