Imagine buying into a sector that everyone calls “expensive,” only to watch it deliver some of the biggest gains of the year. That’s exactly what happened in 2025 with certain names in the semiconductor space. While the headlines chased the flashy chip designers, the real money—quietly, steadily—was made in the companies that make the tools those designers can’t live without.
I’ve been following markets long enough to know that trends have a way of surprising people who fixate solely on valuations. Sometimes a stock looks pricey on paper, but if the underlying business is firing on all cylinders, that multiple can compress in the best possible way: through explosive earnings growth rather than a price crash.
Why Chip Equipment Stocks Stole the Show in 2025
The semiconductor industry had another stellar year. The broader ETF tracking the space climbed nearly 50%, but dig a little deeper and you’ll find that the equipment providers—the picks and shovels of the AI gold rush—often outperformed even the household names.
Two standouts in particular caught my eye: Lam Research (LRCX) and KLA Corporation (KLAC). These weren’t bargain-basement buys when the momentum started building. They traded at premiums, yet the price action told a different story. Upward breaks, higher highs, and order books swelling from massive data center buildouts.
In my experience, when a stock is in a strong uptrend, trying to wait for a “better” entry based purely on valuation metrics can mean missing the entire move. Trend often trumps valuation in the short to intermediate term. And these two names proved that point beautifully throughout 2025.
The Bigger Picture: Tech Capex Driving Everything
Let’s zoom out for a moment. Recent data shows that technology sector capital spending contributed 40-45% of U.S. GDP growth over the last three quarters of 2025. That’s a dramatic shift from earlier in the decade when it hovered below 5%.
All that money flowing into servers, data centers, and advanced computing infrastructure has to translate somewhere. And a huge chunk lands right in the lap of equipment suppliers. We’re talking about highly specialized machines for etching, deposition, inspection, and metrology—processes that chipmakers simply cannot scale without.
The barrier to entry here is enormous. You can’t just start competing overnight. Scale, expertise, reliability—these companies have spent decades building moats. That’s why a handful of players dominate, and why their pricing power remains intact even in cyclical downturns.
The need for increased yields and faster time-to-market has never been higher.
That’s not hype. It’s reality when trillions are on the line in the race for AI supremacy.
Lam Research: From Trough to Record Highs
Lam Research provides critical etching and deposition equipment. Think of them as the company that helps carve out the tiny features on cutting-edge chips. Their revenue bottomed a couple years back, then embarked on an impressive recovery streak.
Five straight quarters of sequential growth culminated in a record quarter recently, with sales hitting over $5 billion—up nearly 30% year-over-year. Full-year revenue for 2025 came in around $18.4 billion, a solid 24% jump from the prior year.
Margins told an equally compelling story. Gross margins expanded from the mid-40s at the low point to over 50%. Operating margins pushed toward 35%. When volume ramps in this business, the incremental profitability is staggering.
- AI-driven demand for high-bandwidth memory
- Surge in advanced packaging technologies
- Major hardware upgrades across hyperscalers
These tailwinds aren’t fading anytime soon. Management has laid out ambitious targets: $25-27 billion in annual revenue by 2028, with even loftier long-term aspirations north of $30 billion. If they hit those numbers while keeping margins elevated, the earnings power becomes truly exciting.
Perhaps the most interesting aspect is how an “expensive” stock can grow into its valuation. We’ve seen it before with other tech leaders—share prices rise, but earnings rise faster, bringing the multiple down without any price correction needed. Magic, as someone once called it.
KLA Corp: Inspection Leader Riding the Complexity Wave
KLA focuses on process control and inspection—essentially making sure chips come out perfect despite ever-shrinking geometries and increasingly complex designs. As nodes get smaller and packaging gets more sophisticated, their tools become indispensable.
Their advanced packaging segment alone is projected to nearly double from 2024 levels by the end of 2025. Services revenue, now about a quarter of the total mix, has grown year-over-year for 53 consecutive quarters. That recurring stream helps smooth out the cyclical nature of equipment spending.
Margins here are even more impressive: gross in the low 60s, operating above 44%. Free cash flow recently topped $1 billion per quarter for the first time. And capital return? Sixteen years of dividend increases, aggressive buybacks, and a pledge to return over 85% of free cash flow to shareholders.
When you combine mission-critical technology with pristine financial management, you get the kind of setup long-term investors dream about.
Technical View: Where the Charts Stand Heading Into 2026
Charts don’t lie, especially in momentum-driven sectors. For Lam Research, price has respected its rising 50-day moving average as support multiple times since the initial breakout last spring.
We’re approaching another potential test of that level soon. I’d watch around the $159 zone carefully. A clean break below could signal profit-taking accelerating, especially with tax considerations now that we’re in a new calendar year.
Momentum indicators have cooled a bit—perfectly normal after the run we’ve seen. The key is whether the divergence worsens or resolves with fresh buying on any pullback.
KLA presents a cleaner picture technically. The stock remains well above its rising 200-day average, with overhead resistance around the $1250 area. The 50-day is the near-term line in the sand for traders.
- Stay disciplined on position sizing—especially with potential 20%+ drawdowns possible.
- Use dips toward major moving averages to add methodically.
- Watch for confirmed breakouts above recent highs as confirmation the trend remains intact.
Nothing fancy. Just basic risk management applied to exceptional businesses.
Looking Ahead: What Could Drive 2026 Performance
Industry forecasts point to wafer fabrication equipment spending topping $105 billion in 2025, with cumulative data center capex potentially reaching $2.5 trillion over the coming half-decade. That kind of runway doesn’t vanish overnight.
Both companies trade around 30x forward earnings while analysts project mid-to-high teens EPS growth for 2026. Not cheap in absolute terms, but reasonable if growth delivers and margins hold.
Risks exist, of course. Semiconductor cycles can turn quickly. Geopolitical tensions, export restrictions, or a broader slowdown in AI spending could pressure sentiment. But the structural drivers—AI proliferation, 5G/6G buildouts, electric vehicles, edge computing—remain firmly in place.
In my view, the reward/risk still tilts positive for patient investors willing to buy quality on weakness rather than chase strength.
Final Thoughts on Positioning for the Year Ahead
2025 rewarded those who trusted the trend over traditional value metrics. Will 2026 do the same? It’s never guaranteed, but the setup looks remarkably similar.
Strong order visibility, expanding margins, and secular demand tailwinds create a potent combination. Add disciplined technical management, and you have a framework that has worked repeatedly in this space.
Whether you’re adding on dips, holding through volatility, or simply watching for confirmation of the next leg higher, these names deserve a spot on any growth-oriented watchlist heading into the new year.
Markets reward preparation and patience more than perfection. And right now, the preparation part looks pretty straightforward: own great businesses in growing industries, manage risk sensibly, and let the trend do the heavy lifting when it’s willing.
(Note: All investing involves risk. The views expressed here are personal opinions based on publicly available information and should not be taken as individualized investment advice.)
