Investing.com -- Morgan Stanley raised its outlook for the semiconductor capital equipment cycle, lifting wafer fab equipment (WFE) forecasts and reshuffling ratings across key industry names as it flagged stronger NAND momentum and a longer cycle than previously expected.

In a note on Monday, Morgan Stanley analyst Shane Brett said the firm now expects the WFE market to grow to $149bn in 2026 (+27%) and to $191bn in 2027 (+28%), while introducing a 2028 forecast of $215bn (+13%).

The analyst believes “the WFE cycle has longevity,” supported by both memory constraints and expanding leading-edge logic demand.

A key focus was memory, where Morgan Stanley highlighted continued imbalance. It noted that for DRAM, “we do not think the supply/demand imbalance is resolved,” while NAND is expected to become the fastest-growing segment in 2027, rising 52% year-on-year as greenfield investment accelerates.

The bank also pointed to structural demand drivers from AI and CPUs, citing Intel-driven capex expansion and packaging growth trends, with packaging forecast to grow 41% versus 27% for overall WFE.

Against this backdrop, Morgan Stanley shifted its positioning across the sector. It raised Lam Research to Overweight from Equal-weight and lifted its price target to $331 from $293, while simultaneously cutting Applied Materials to Equal-weight from Overweight. It also named MKS its top pick, citing improved exposure to NAND upside.

Morgan Stanley has also become “more positive on NAND WFE revisions from here,” reflecting what it views as a broadening and lengthening investment cycle across semiconductor manufacturing equipment markets.