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Chip Equipment Stocks Surge After Strong Earnings Reports

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A logo sign outside the headquarters of Applied Materials, Inc., in Santa Clara, Calif.Photograph by Kris Tripplaar — Sipa USA/AP

Shares of semiconductor equipment suppliers surged on Wednesday after quarterly earnings reports from Lam Research and ASML Holding suggested a recent wave of spending by chipmakers was far from over.

Lam Research (LRCX) jumped 6.58% to a record of $135.81 after its quarterly results and outlook late on Tuesday blew past Wall Street’s expectations.

KLA-Tencor rose 2.09% (KLAC), Applied Materials added 3.81% (AMAT) and Teradyne climbed 2.14% (TER). Growing demand for semiconductors for smartphones, cars and home devices has been fueling capital investment in new manufacturing technology, propelling a rally over the past year in semiconductor equipment stocks.

A major boost comes from memory chipmakers including Micron Technology (MU), Samsung Electronics and Toshiba transitioning to 3D NAND, a new kind of flash memory technology.

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“Business remains exceptional,” Morgan Stanley analyst Joseph Moore wrote following Lam Research’s report. “We could see upward revisions to spending throughout the year, and we expect memory to remain strong.”

Dutch lithography equipment maker ASML on Wednesday said its first-quarter net income doubled and that demand looked healthy for the rest of 2017. However, its U.S.-traded stock fell 1.85% after ASML said its gross margin would dip due to shifts in product mixes.

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At least six analysts raised their price targets for Lam Research following its report. Eighteen analysts recommend buying Lam Research, while none recommend selling and two have “hold” ratings, according to Thomson Reuters data.

A plan by Lam Research to buy KLA-Tencor was called off last year due to antitrust concerns. Under that deal, Lam Research would have paid $67.02 per share for KLA-Tencor, far below Wednesday’s share price of $96.58.