Citi Warns of Chip Equipment Downside: Watch Three Stocks

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•  23 Oct 2026
 

Citi maintained buy ratings on $LRCX Lam Research, $AMAT Applied Materials and $KLAC KLA while outlining further semiconductor equipment downside in its 2028 scenario analysis. The base case implies approximately 10% declines from Thursday closing prices, while the pessimistic case implies approximately 30% declines. These scenario values are separate from current price targets and reflect risks to growth assumptions despite strong chipmaking equipment demand.

Lam Research fell more than 17% last week and nearly another 13% this week through Thursday, including an approximately 12% drop on Thursday alone. Fiscal first-quarter earnings released Wednesday slightly exceeded Wall Street forecasts but failed to clear elevated expectations for AI-exposed companies. Applied Materials declined more than 19% last week and entered Friday down another 8.2% for the week. KLA lost approximately 15% last week and another approximately 11% through Thursday.

Semiconductor equipment demand remains supported by data center expansion and advanced chip production, but supply constraints could limit market growth. The companies provide systems used to manufacture and inspect chips on silicon wafers, positioning them within the AI capital spending cycle. Analyst Atif Malik said investors are increasingly focused on downside scenarios as concerns about data center debt and spending extend to equipment suppliers. The analysis tests the impact of industry constraints without assuming that interest in artificial intelligence disappears.

The 2028 base case assigns share values of $335 to Applied Materials, $130 to KLA and $208 to Lam Research. The pessimistic case assigns $259, $105 and $164, respectively. Citi estimates approximately 10% downside in the base case and approximately 30% in the pessimistic case relative to Thursday closing levels. These figures are scenario outputs, not revisions to current semiconductor stock price targets.

Malik retained price targets of $375 for Applied Materials, $290 for KLA and $435 for Lam Research, alongside buy ratings. The gap between current targets and the 2028 scenarios highlights valuation sensitivity to semiconductor equipment growth assumptions. The warning represents a conditional risk assessment rather than a broad ratings downgrade.

Early Friday trading brought modest gains, with Lam Research up approximately 0.6% to $231.84, Applied Materials up approximately 1.3% to $380.35 and KLA up approximately 0.4% to $148.33. Those moves recovered only a small portion of the preceding two weeks of losses. Malik said changes in data center demand expectations could materially alter the equipment supplier outlook. Watch and follow Lam Research, Applied Materials and KLA for two factors: whether customers maintain planned investment and whether suppliers deliver systems at the pace embedded in growth forecasts.

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