Morgan Stanley makes bold Lam Research stock call

The artificial intelligence buildout has already sent semiconductor demand sharply higher, and Wall Street is now looking deeper into the supply chain for the next group of companies that could benefit from the spending cycle.

Morgan Stanley is making a notable shift inside semiconductor capital equipment, upgrading Lam Research to overweight from equal-weight and raising its price target to $331 from $293. The firm also downgraded Applied Materials to equal-weight from overweight, a rotation that puts Lam at the center of its latest chip-equipment call.

In the note given to TheStreet by Morgan Stanley, the firm said the change reflects its growing confidence in NAND wafer-fab-equipment spending into 2027.

The call comes as Morgan Stanley raises its broader wafer-fab-equipment forecast. The firm now expects 2026 WFE spending of $149 billion, up 27% year over year, and 2027 spending of $191 billion, up 28%. It also introduced a 2028 forecast of $215 billion, up 13%, suggesting the AI-driven spending cycle still has room to run.

NAND spending changes the Lam Research story

Lam’s upgrade centers on one key shift: Morgan Stanley is becoming more constructive on NAND after previously favoring DRAM exposure. The firm said it had preferred Applied Materials over Lam because DRAM WFE revisions had been more favorable, but that gap has narrowed as NAND spending now appears to have a better revision path.

Morgan Stanley expects NAND WFE to be the fastest-growing end market in 2027, rising 52% year over year as greenfield activity accelerates across major producers. The firm also sees unconstrained NAND bit demand above 40%, compared with its 2027 bit supply growth forecast of 32%, leaving room for more equipment spending if customers move to close the gap.

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This is important for Lam because Morgan Stanley says NAND revisions have a larger impact on Lam’s model than on Applied Materials. In the note given to TheStreet by Morgan Stanley, the firm said it now models 59% NAND systems growth for Lam in 2027, pushing its calendar 2027 forecast to $35.4 billion in revenue and $9.71 in earnings per share from a prior estimate of $34.6 billion and $9.46.

The firm also raised the valuation premium it assigns to Lam over Applied Materials. Morgan Stanley had previously valued Lam at a roughly 10% premium to Applied Materials, reflecting confidence in Applied Materials’ 2026 share gains. With Lam’s 2027 share-gain prospects looking stronger, Morgan Stanley lifted that premium to 20%, above the three-year average of 16%, and raised its target multiple to 34 times.

Lam gets support from NAND and logic

Morgan Stanley’s base case now assumes Lam can outperform the broader WFE market in 2026 and 2027 as NAND and non-China foundry logic strengthen. The firm said Lam outperformed WFE by 8 percentage points in 2024 and estimated another 27 percentage points of outperformance in 2025, helped by NAND, China, and TSMC.

The firm’s risk-reward framework gives Lam a $331 base-case price target, based on roughly 34 times calendar 2027 non-GAAP EPS of $9.73. Morgan Stanley’s base case assumes Lam revenue growth of 31.2% in calendar 2027, driven by NAND and foundry logic, with gross margin reaching 51.4%.

Morgan Stanley’s bull case points to a much stronger scenario. If DRAM and NAND pricing and utilization improve more than expected, the firm sees Lam reaching $436, with revenue growth of 45.6% in 2027 and gross margin expanding to 52.4%. Its bear case is $219, reflecting weaker memory markets and potential share loss to competitors.

Morgan Stanley is making a notable shift inside semiconductor capital equipment, upgrading Lam Research to overweight from equal-weight and raising its price target to $331 from $293.

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Applied Materials loses favored status

The Lam upgrade also comes with a less favorable view of Applied Materials. Morgan Stanley said Applied Materials still has strong DRAM exposure, but DRAM is expected to be the fastest-growing end market in 2026 and the slowest-growing in 2027. That makes Lam’s NAND mix more compelling as the calendar moves toward next year.

Morgan Stanley said NAND “shifts the needle” for Lam because of the mix, while the same spending increase has a smaller impact on Applied Materials. Lam’s expected NAND exposure gives the company a cleaner path to benefit if spending moves above prior-cycle highs.

There are still risks in the Lam call. Morgan Stanley flagged Lam’s higher China exposure as one issue, noting that any tightening of restrictions would have an outsized impact on the company. The firm also noted that large-scale non-China NAND greenfield spending has been limited in recent years, and Lam’s brownfield incumbency may not translate as easily to new greenfield projects.

Morgan Stanley’s broader message is still clear. The firm sees the WFE cycle lasting longer, NAND spending accelerating, and Lam Research gaining a better position as equipment demand broadens into 2027. For investors watching the next phase of the AI hardware buildout, Morgan Stanley’s latest call moves Lam closer to the center of the trade.

Related: Morgan Stanley resets Applied Materials stock price forecast

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