Chips, Dividends, and the Inevitable

by

So, 2026. Another year. Investors are hoping for a continuation of the bull market, naturally. It’s always a hope. The S&P 500 is mostly just being, flat as a pancake. A lot of sectors are down. It’s predictable, really. So it goes.

But there’s a little pocket of… not exactly joy, but certainly relative prosperity. Every stock in the S&P 500 Semiconductor Equipment & Materials group is up double digits. Four of them are up over 25% since January 1st. These aren’t the companies making the shiny new chips everyone talks about. They make the machines that make the chips. A bit further removed from the glamour, but that’s where the steady money is. Or, at least, it is right now.

Let’s look at the numbers. Applied Materials (AMAT +1.13%), up 26.6%. Lam Research (LRCX 1.27%), up 33.4%. KLA (KLAC +0.85%), up 25.1%. Teradyne (TER +0.02%), up 19.8%. And Qnity Electronics (Q 2.68%), up 25.8%. They’re not household names, not yet, but they’re the quiet engines. They’re the ones who get paid even if the AI revolution turns out to be a slightly disappointing series of chatbots.

Everyone’s chasing Nvidia and AMD, the chipmakers themselves. Perfectly reasonable. But these equipment companies? They’re the pick-and-shovel play, as they say. Except the gold rush might be made of silicon. And the shovels cost a few billion dollars each.

Think about it. Nvidia, Intel, Samsung, TSMC, Broadcom, ASML, Micron, Texas Instruments… they’re all customers of Applied Materials. And many, many more. They need machines to make the chips that will power everything from your toaster to the robots that will eventually judge us all. So it goes.

Semiconductor Sales: A Rising Tide (Maybe)

Analysts are predicting semiconductor sales will soar. They were somewhere between $630 and $680 billion in 2024. They think it’ll hit $1.1 trillion by 2030. Mostly driven by AI and data centers, naturally. The usual suspects. McKinsey thinks it could be even higher – $1.5 to $1.8 trillion. Estimates. They’re just guesses, really. But it’s a nice story, isn’t it?

Chipmakers Are Spending, and That’s What Matters

Taiwan Semiconductor Manufacturing (TSMC) announced they’re planning to spend between $52 and $56 billion on equipment in 2026. That’s up from $41 billion last year. They’re also raising expectations for the next three years. That’s a lot of money. It’s enough to make you wonder what they know that we don’t.

This announcement gave those semiconductor equipment stocks a nice little boost last week. Applied Materials rose 8%, Lam Research climbed 7%, KLA rose 6%, and Teradyne climbed 3%. It’s not a surprise, not really. It’s just… momentum. And money following money. TSMC is the second-largest semiconductor company on the planet, after Nvidia. They’re also investing at least $250 billion in semiconductor manufacturing in the U.S. It’s a grand plan. Or a grand illusion. Time will tell.

Nvidia’s capital expenditures are expected to rise from $3.2 billion last year to $6.2 billion this year, and $7.6 billion in 2027. They’re gearing up. Everyone’s gearing up. It’s a bit like watching ants prepare for a flood. They don’t know why the flood is coming, but they know they need to build higher.

Loading widget...

If chipmakers are actually going to spend this kind of money on equipment, it’s good news for the companies that make that equipment. If you believe the AI buildout will continue – and I do, mostly because I’m tired of hearing about it – then Applied Materials and the other semiconductor fabrication and testing equipment stocks are worth a look. They’re not glamorous, but they pay dividends. And in the long run, that’s all that really matters. So it goes.

Read More

2026-01-25 15:33