AI Chips Can't Exist Without These 2 Underrated Tech Giants

The stock market often fixates on a single question: Which chip designer will wear the crown in the artificial intelligence (AI) era? Will it be the current king, NVIDIA (NASDAQ: NVDA), or a challenger like AMD (NASDAQ: AMD)? While this battle for market share makes for exciting headlines, it obscures a critical physical reality. No advanced chip can exist without the highly specialized factory tools required to build it.

While designers fight a fierce, volatile war for dominance, the factories (known as fabs) must purchase equipment from a select few suppliers regardless of whose name is stamped on the final processor. This dynamic creates a classic picks and shovels investment opportunity. Just as tool suppliers made the most reliable fortunes during the Gold Rush, the companies providing the essential infrastructure for sovereign AI clouds are positioned for stable, long-term growth.

Industry data supports this view. Estimates suggest that for every $100 billion invested in AI data center infrastructure, approximately $8 billion flows directly into the Wafer Fab Equipment (WFE) market. With the WFE market expected to exceed $105 billion in calendar year 2025 and forecasted to grow further in 2026, this sector offers a predictable revenue stream. Two giants stand out as indispensable to this economy: Applied Materials (NASDAQ: AMAT) and Lam Research (NASDAQ: LRCX).

The Technology Moat: Why These Two Are Indispensable

High-end chip manufacturing is not a commodity business; it is an oligopoly where specific tools are required for specific tasks. Fabs cannot simply swap out one machine for another. To understand the investment case, investors must understand the physical bottlenecks in modern computing that these companies solve.

Applied Materials: The Logic Leader

Applied Materials is the leader in materials engineering, a critical step for logic chips (processors) and advanced packaging. As chips become more powerful, they generate immense heat.

To manage this, the industry is shifting to a new transistor architecture called Gate-All-Around (GAA). This structure allows for better power control at the 2-nanometer node and beyond. Applied Materials provides the specific tools needed to build these structures:

• Applied Centura Xtera Epi: This system creates void-free structures that are essential for transistor speed. Without this specific capability, the transistors would not function at the required performance levels.
• Kinex Hybrid Bonding: As companies stack chiplets to create more powerful processors, they face a queue-time problem: if parts sit too long during manufacturing, they degrade. The Kinex system integrates cleaning, alignment, and bonding into a single vacuum-controlled environment, solving this issue and enabling the high-performance stacking essential for AI.

Lam Research: The Memory Specialist

While Applied Materials focuses on the computer's brain, Lam Research dominates the memory.

AI models require massive amounts of fast memory, known as High Bandwidth Memory (HBM), and long-term storage, known as 3D NAND.

To fit more memory into a smaller space, manufacturers must stack layers of silicon vertically, sometimes reaching over 400 layers.

• Lam Cryo 3.0: This etch technology uses extreme cold to drill deep, uniform channels through 400+ layers of memory. Older technology distorts the channel, ruining the chip.
• Vantex: These dielectric etch chambers are explicitly designed to work with Cryo 3.0 to build these high-aspect-ratio structures.

Weathering the Storm: Growth Despite Geopolitics

The business model of equipment manufacturers offers a layer of stability that pure-play chip designers often lack. While chip sales can fluctuate based on consumer demand or competitive pressure, equipment requires constant maintenance, calibration, and upgrades.

This creates a recurring revenue safety net. In fiscal year 2025, Applied Materials’ service division, Applied Global Services (AGS), generated $6.39 billion in revenue, up 3% year-over-year. Similarly, Lam Research’s Customer Support Business Group (CSBG) generates reliable revenue from spares and upgrades. This service revenue provides a floor for earnings even during potential market downturns.

This resilience was proven recently in the face of significant geopolitical headwinds. In late 2025, the U.S. government implemented the 50% affiliate rule, effectively expanding export restrictions to a broader range of Chinese entities. This rule dictates that if a restricted parent company owns 50% or more of a subsidiary, the subsidiary is automatically restricted as well.

This caused Applied Materials’ revenue share from China to drop from 37% in fiscal 2024 to 30% in fiscal 2025. Lam Research faced similar pressures, with an immediate $200 million revenue impact projected for the December 2025 quarter. However, despite losing a significant portion of their largest market, both companies maintained record or near-record revenues. This is a critical signal for investors: demand from the United States, Taiwan, and Korea, driven by the AI boom, is healthy enough to offset major geopolitical losses.

A Value Entry Point Into the AI Supercycle

Beyond their technological moat, these companies offer attractive financial fundamentals. They typically trade at lower price-to-earnings (P/E) multiples than high-flying chip designers, offering a value entry point into the AI sector. This allows investors to participate in the AI supercycle without paying the steep premiums often associated with the most popular AI stocks.

Furthermore, both companies are committed to returning substantial cash to shareholders, which helps stabilize the stock price.

• Applied Materials: In fiscal year 2025, the company returned approximately $6.3 billion to shareholders through dividends and share buybacks.
• Lam Research: The company demonstrated similar discipline, repurchasing $990 million of its own stock in the September 2025 quarter alone.

This consistent return of capital demonstrates management's confidence in their cash flow and provides a tangible return to investors while they wait for the next leg of growth.

Infrastructure Over Hype: Why the Equipment Makers Win

While chip designers fight for the spotlight, Applied Materials and Lam Research own the stage they stand on. They provide the essential infrastructure, the toll roads, of the semiconductor industry. Without their specific, patented machinery, the transition to 2nm logic chips and high-capacity memory simply cannot happen.

With the Wafer Fab Equipment market projected to top $105 billion in 2025 and continue growing into 2026, these companies offer a foundational way to invest in the semiconductor supercycle. For investors seeking exposure to AI growth with lower volatility and proven financial stability, the equipment oligopoly presents a compelling opportunity.

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The article "AI Chips Can’t Exist Without These 2 Underrated Tech Giants" first appeared on MarketBeat.