Everybody loves talking about chips. Fewer people talk about the companies selling the machines, metrology, and test gear that make the chips possible in the first place.
That is a shame, because these businesses often have better moats, steadier service revenue, and less dependence on guessing which chip designer wins the next hype cycle.
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Theme: Semiconductor Equipment and Testing
This theme works because semiconductor manufacturing is brutally complicated.
You cannot build advanced chips without the equipment stack, and you cannot run a competitive fab without inspection, process control, deposition, etch, and test.
That means the equipment side benefits from long capital cycles and from recurring service once tools are installed.
Here is the chain reaction:
Fab investment stays healthy → equipment demand remains elevated
More tools installed → service revenue grows
Service revenue grows → margins and visibility improve
Process complexity rises → inspection and test become more critical
More critical tools → high-quality vendors keep share and pricing power
The current data still supports the broad setup.
Applied Materials reported fiscal first-quarter 2026 revenue of $7.01 billion, down 2 percent year over year but above the midpoint of its guidance, and management said demand was being helped by investments in advanced logic and memory.
Lam Research reported December 2025 quarter revenue of $5.345 billion, up from the year-ago period, with gross margin at 49.6 percent.
KLA’s latest fiscal second-quarter 2026 results showed revenue up 24 percent year over year to $3.08 billion, while Teradyne said its fourth-quarter 2025 revenue rose 12 percent year over year to $753 million.
Onto Innovation reported fourth-quarter 2025 revenue of $266.9 million and guided first-quarter 2026 revenue to $275 million to $285 million.
The point is not that the cycle is perfectly smooth. It is not. The point is that complexity and capital intensity are still doing a lot of the work here.
What we want to see to stay bullish
Fab equipment spending staying healthy
Service and recurring revenue becoming a bigger piece of the mix
Strong book-to-bill or backlog tone
Stable margins despite export controls and product mix shifts
Evidence advanced packaging, leading-edge logic, and process control remain active demand areas
What can ruin the party
Chip equipment is still cyclical. Customers can push out orders. China restrictions can complicate demand and mix.
And if memory or logic spending cools faster than expected, these names can correct hard. This is a great theme when capex is alive and complexity is rising.
It is much less fun when fabs slam on the brakes.
Applied Materials (AMAT)
What it does: Broad semiconductor equipment supplier spanning deposition, materials engineering, and related services.
Why it fits: Applied is the balanced heavyweight in the group.
Its first-quarter fiscal 2026 results came in above the midpoint of guidance, with $7.01 billion in revenue and a 49.0 percent GAAP gross margin.
Management also pointed to strong demand tied to advanced logic and memory.
What could go right:
Broad product exposure helps smooth the cycle
Installed base drives recurring service revenue
Advanced packaging and leading-edge investments support demand
Operating leverage supports strong earnings quality
What to watch next: Demand by end market, especially foundry-logic and DRAM, plus any comments on customer spending outside China.
Applied looks best when it sounds diversified, not dependent on one hot node.
Risk: Export restrictions and capex pauses can always hit sentiment.
Lam Research (LRCX)
What it does: Wafer fabrication equipment, especially strong in etch and deposition.
Why it fits: Lam benefits when process complexity rises, because advanced nodes need more etch intensity and more manufacturing steps.
Its December 2025 quarter revenue was $5.345 billion, with gross margin at 49.6 percent and operating income at 33.9 percent of revenue.
What could go right:
Etch intensity remains strong in advanced nodes
Memory recovery supports incremental demand
High-margin service adds stability
Cash generation stays strong
What to watch next: Memory commentary, China mix, and whether margins remain firm even as product mix shifts.
Risk: Lam can move hard on any change in memory spending expectations.
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KLA (KLAC)
What it does: Process control and inspection systems used to detect defects and improve yields.
Why it fits: If chips get more complex, process control gets more important, not less.
KLA’s fiscal second-quarter 2026 results showed revenue of $3.08 billion, up 24 percent year over year, a reminder that inspection remains mission-critical.
What could go right:
Process control remains one of the cleanest spending priorities in semicap
Higher-margin service and software improve revenue quality
Complexity at advanced nodes supports sustained demand
Strong margins reinforce premium valuation
What to watch next: Foundry-logic and advanced packaging commentary, plus service revenue quality.
Risk: Premium names get punished harder if growth cools even modestly.
What it does: Test equipment used in semiconductor manufacturing, plus automation exposure.
Why it fits: Testing is unavoidable when chips become more powerful and complex.
Teradyne’s fourth-quarter 2025 revenue rose 12 percent year over year to $753 million, and its semiconductor test segment is still the core driver.
What could go right:
More complex chips require more test intensity
Better mix improves margins
Semiconductor test demand rebounds alongside broader capex
Automation adds optionality beyond pure chip test
What to watch next: Semiconductor test bookings, mobile and compute trends, and whether automation is helping or distracting from the core story.
Risk: End-market swings can make Teradyne look more cyclical than the process-control names.
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What it does: Inspection, metrology, and process-control tools with exposure to advanced packaging and specialty device manufacturing.
Why it fits: Onto gives you a smaller-cap way to play complexity.
The company reported fourth-quarter 2025 revenue of $266.9 million and guided first-quarter 2026 revenue to $275 million to $285 million, with healthy gross margin guidance.
What could go right:
Advanced packaging and specialty markets keep growing
Margin profile stays attractive
Smaller-cap semicap names attract more attention if the cycle stays healthy
Execution and product positioning keep supporting a premium multiple
What to watch next: Advanced packaging exposure, margin consistency, and whether guidance keeps trending upward.
Risk: Smaller names carry more customer concentration and volatility risk.
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This theme is not about guessing the next chip winner. It is about owning the businesses that sell the critical tools every serious manufacturer needs.
Watch fab spending, service revenue, and whether complexity keeps supporting inspection, etch, deposition, and test.
If those signals stay constructive, the equipment names can keep doing what they do best: quietly making money while everyone else argues about whose GPU has better vibes.
Best Regards,
— Adam Garcia
Elite Trade Club
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