Answering a caller’s question about KLA Corporation (NASDAQ:KLAC) during the October 5 episode of Mad Money, Jim Cramer explained how he ranked three major chip-equipment companies, as he said:
Look, I like, just so you know, I like Lam, okay? I mean, I like Applied Materials and KLA, but they’re all really good companies, and they are the solution for the huge semiconductor shortage we have, of which KLA is certainly part of that, of being able to make things better. I would own that stock right here. Again, I like LRCX more, and I like AMAT more, but that’s a very, very good company and I would not sell it, definitely not.
Cramer had weighed the same three companies in August. His earlier explanation for leaning toward Lam introduced a consideration beyond earnings multiples and chip demand.
Three Different Roles in More Complex Chips
The comparison extends beyond how many factories chipmakers build. KLA Corporation supplies inspection and measurement technology used to identify defects and control manufacturing processes. Its fiscal 2026 Semiconductor Process Control revenue increased 12%, while PCB and Component Inspection revenue rose 21%. The company attributed growth partly to advanced packaging demand and a larger installed base generating service revenue. KLA’s importance to chip production also shaped Cramer’s response to its sharp third-quarter decline, when he saw a disconnect between the company’s role and its stock performance.
Lam Research Corporation (NASDAQ:LRCX) has direct exposure to the processes used to build increasingly complex memory chips. Its Akara etch technology has been adopted by all leading dynamic random-access memory manufacturers for advanced-node development, according to the company. That is a development milestone, rather than confirmation of full-volume production at every customer.
Lam also has a sizable business supporting equipment already in use. Customer support-related revenue and other revenue reached approximately $2.47 billion in the June quarter, compared with approximately $1.73 billion a year earlier. This category includes more than maintenance alone, including upgrades and other products supporting customers’ existing operations.
Applied Materials, Inc. (NASDAQ:AMAT) added a fresh packaging development on October 1 by expanding its partnership with Besi. The collaboration covers technologies for connecting and stacking chips, including logic-memory integration and photonics applications. Besi is joining Applied’s EPIC Center to work on these processes alongside its engineering teams. The packaging partnership adds to a longer-term growth story that had already caught Cramer’s attention. His September endorsement of Applied Materials followed management comments about how far ahead customers were planning.
Applied Has the Lowest Earnings Multiple
Applied Materials trades at approximately 30.1x forward earnings, compared with 35.2x for Lam Research and 36.1x for KLA. At the time of writing, Applied carries the lowest multiple of the three, while the gap between Lam and KLA was relatively small. That gives a valuation basis for distinguishing Applied from the group. It does not, by itself, explain Cramer’s preference for Lam over KLA, since their earnings multiples were much closer. Cramer has previously separated his confidence in KLA from how much investors should buy at once. His September approach to building a position included a specific limit on the initial purchase.
Development Spending and Trade Rules Still Matter
Applied Materials, Inc.’s expanded research program involves substantial investment before all the technologies reach commercial production. The company expects EPIC Center capital spending to scale to approximately $5 billion as customer projects begin. Its partnership announcement explicitly identifies technology development and achieving the center’s objectives as uncertainties.
KLA Corporation’s annual filing also warns that export-license restrictions can prevent shipments and customer support, require the return of customer deposits and create opportunities for Chinese competitors. Strong chip demand does not eliminate those restrictions on where equipment can be sold. For investors considering Applied, Cramer previously outlined a buying plan for a volatile market that distinguished starting a position from deciding when to add more.
Lam Research Corporation faces similar trade restrictions. Its fiscal 2026 annual report warns that limits on equipment and spare-parts sales to Chinese customers can benefit international competitors not subject to the same rules. The company also cautions that customers can quickly change their spending plans, even as AI drives demand. That leaves Lam exposed to both export restrictions and shifts in the timing of equipment orders.
Lam and KLA Gain More Fund Holders
Insider Monkey recorded 139 hedge funds holding Lam Research Corporation in the second quarter, up from 123. KLA Corporation’s count increased to 81 from 71, while Applied Materials, Inc. slipped to 137 from 138. September 15 short interest was approximately 2.09% of float for Lam, 1.81% for KLA and 1.78% for Applied. Short positioning was limited across all three, despite differences in hedge fund ownership trends.
Cramer’s ranking leaves room for all three companies, and their businesses explain why. Lam offers memory-process exposure, Applied is expanding its packaging work, and KLA helps manufacturers detect costly defects. Applied currently has the clearest valuation discount. Choosing between Lam and KLA requires looking beyond a shared semiconductor spending story.
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