Investing.com -- In a note to clients on Friday, JPMorgan raised its forecasts for the wafer fabrication equipment market and named KLA as its top pick among U.S. chip-equipment makers.

Analyst Mio Shikanai lifted the bank's WFE market growth estimates to 31% for 2026, taking the market to $163 billion, 38% for 2027 at $225 billion and 17% for 2028 at $263 billion, a 28% compound annual growth rate over 2025 to 2028.

Shikanai said "cloud service providers (CSPs) are accelerating their investments in response to further growth in AI-related demand," with spending by the top four U.S. players seen growing at a 58% annual rate through 2028.

DRAM memory and TSMC were the main reasons for the upgrade, with the analyst expecting memory supply to lag demand even in 2028 and TSMC's leading-edge capacity to stay above 100% utilization.

Among U.S. equipment names, Shikanai highlighted KLA. "We see the most attractive risk/reward in KLAC given its relative underperformance YTD, underappreciated exposure to foundry/logic-led WFE spending in 2027, and potential for upward revisions to consensus revenue estimates," she wrote.

The analyst noted KLA shares are up about 50% this year but have lagged peers Lam Research and Applied Materials, up roughly 85% and 82%, respectively, as those names benefited more directly from memory-related spending.

She expects the mix to rotate toward foundry and logic in 2027, disproportionately benefiting KLA, with rising capex budgets at customers such as Intel offering potential upside to consensus.