KeyBanc Boosts Targets for AMAT, MKSI & AEIS on AI Growth, Notes China & Regulation Risks

KeyBanc’s recent adjustments signal a clear shift in its outlook for semiconductor equipment and power systems: what had been a cautious or lagging segment is now viewed through the lens of acceleration, particularly due to AI infrastructure and the demand for next-generation chip production. These revisions reflect not only stronger financial performance in recent quarters but also expectations that demand tailwinds will be sustained over the next few years.

For Applied Materials, KeyBanc raised its target to $380, citing both stronger deposition/etch exposure as logic and memory transition to vertical designs advances, and a potentially critical imbalance (scarcity) in conventional DRAM capacity as another lever for expansion. The valuation has room to run, given that AMAT still trails peers like KLA and Lam Research in multiple expansion—mainly because of its heavier exposure to mature nodes and the Chinese market.

MKS Instruments’ upgrades rest on its solid positioning in WFE, particularly in deposition and etch tools, coupled with rising complexity in PCBs and substrates (layers moving from ~40 to 120+). KeyBanc is also bullish on MKS maintaining or exceeding its ~47% gross margin target, helping drive free cash flow and enabling debt reduction.

Advanced Energy’s case is rooted in its strong Q3 beat (both revenue and EPS), its doubling of datacenter business this year with further 25-30% growth projected next year, and its operational leverage toward margins. Also noteworthy is expectations for its Semiconductor segment to ramp in H2 2026 with leading-edge investments (new product share gains).

Strategically, these moves suggest KeyBanc sees a convergence of multiple favorable dynamics: the AI demand cycle, node-transition spending (logic, foundry, advanced DRAM), capacity scarcity in certain segments (e.g. DRAM), and infrastructure/capex in data centers. These create both opportunity and risk. On the upside, companies well positioned in deposition/etch, power conversion, and core WFE tools stand to capture outsized gains. Conversely, companies with trailing exposure, weaker supply chains, or dependence on unstable regulatory or trade environments (notably China) could face headwinds.

Open questions remain: how sustainable is cyclic demand beyond 2026-2027? Can AMAT, MKSI, and AEIS hit margin and free cash flow targets in the face of cost inflation and supply constraints? What role will export controls or geopolitical risks play in constraining China exposure? And finally, how will falling costs (for example, of older node capacity) affect demand dynamics for penetration into AI/compute? These areas will be critical to monitor for institutional investors considering these revised targets.