KLA

KLA (KLAC 0.81%), a company that makes crucial equipment for the manufacturing of microchips, was producing some tasty gains for its shareholders this week. These are frothy times for U.S. chip companies, and by extension, KLA should do well too. Over the course of the past few days, two bullish new takes from analysts bolstered the buy case for this company in particular.

According to data compiled by S&P Global Market Intelligence, KLA’s share price increased by nearly 13% over the course of the week on these tailwinds.

Components maker to the chip stars

Both of those prognosticator updates were published before the market open on Monday, helping to set the bullish tone for KLA stock in the subsequent days.

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The first came from Bank of America Securities’ Vivek Arya, who cranked his KLA price target a full 30% higher to $1,300 per share from his previous level of $1,000. He also maintained his buy recommendation on the stock.

According to reports, Arya wrote that he’s detecting signs of higher investment into dynamic random access memory (DRAM) production. On top of that, the great thirst for the advanced processors necessary to power artificial intelligence (AI) functionalities should help raise the fortunes of chipmakers generally — and their suppliers.

Another bull maintains his buy rating

Soon after that report was disseminated, Stifel‘s Brian Chin pulled the lever on a more modest raise. Chin lifted his KLA price target to $1,050 from $922. Like Arya, he kept his buy recommendation on the shares intact.

Both these takes feel realistic. Broadly speaking, this is a fine time to be invested in stocks throughout the chip sector, provided they’re not (yet) too expensive on their valuations.

Given how KLA (KLAC 5.74%) stock performed on the market Thursday, the company probably doesn’t want the trading week to end. Its shares zoomed nearly 6% higher in price, thanks largely to a promising new deal in the chip industry. That rise was notably steeper than the S&P 500 index’s 0.7% increase.

A very big deal in the sector

Even by the standards of the microchip business, the deal announced between Nvidia and Intel is significant. The former is investing a cool $5 billion in the latter, and the two will collaborate on a series of products and projects.

Image source: Getty Images.

That payout will breathe more life into the struggling Intel. Last month, the Trump administration announced that the federal government would invest $8.9 billion into the company for a nearly 10% equity stake. A key goal of that move was to bolster the domestic chipmaking sector.

Just before that, news hit the headlines of another investment, this one from SoftBank. The busy Asian tech conglomerate said it was plowing $2 billion into Intel.

This fairly sudden infusion of capital into one of America’s major processor powerhouses is a tide that promises to lift many boats — hence the investor enthusiasm Thursday for all manner of chip stocks. KLA is a fine candidate, as it’s a pick-and-shovel company that manufactures the equipment used to produce chips.

Knock-on effect

I should note here that KLA was not directly involved in any of the above transactions. Further, there’s no guarantee that its business will jump due to Intel’s influx of capital. As an important link in the chip production chain, however, if any company’s going to benefit from a knock-on effect with these deals, it’s KLA.