China-Related Headwinds Force Chip Analyst To Slash Expectations on Lam Research, Applied Materials

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  • Mizuho analyst Vijay Rakesh reiterated a Buy on Applied Materials, Inc AMAT and slashed to a $90 price target, down from $150.
  • Rakesh maintained a Buy on Lam Research Corp LRCX with a $400 price target, down from $650.
  • He saw significant near-term headwinds for WFE in 2023, primarily tied to China restrictions, but also a weaker macro moderating the outlook for logic and foundry. 
  • Last week, AMAT announced a ~$400 million quarterly impact from China restrictions, which could increase with potential Taiwan Semiconductor Manufacturing Company Ltd TSM cuts announced late last week and weaker macro. 
  • LRCX will likely report on October 19, and he could see a substantial cut to the outlook, primarily on China restrictions (Yangtze Memory Technologies Corp) and the broader macro. 
  • He reduced his 2023 WFE outlook from ~$88 billion to ~$75 billion (with ~$7-8 billion impact from China versus 2022 at ~$94 billion).
  • Despite near-term elevated risks from geopolitical tensions, he saw AMAT and LRCX well-positioned longer-term as top global WFE market leaders, critical enablers of secular technology trends in data centers, automotive, capital intensity, and localization of WFE spending supported by governments. 
  • Price Action: AMAT shares traded higher by 1.03% at $75.18 on the last check Tuesday.
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