China’s latest move to tighten control over rare earth metals’ exports has sent ripples through the semiconductor industry.
With new licensing requirements for foreign entities using Chinese-sourced rare earths, chip equipment makers face mounting uncertainty.
These metals – critical for high-precision vacuum systems and magnet-based components – are foundational to advanced semiconductor manufacturing.
Evercore ISI warns that several large-cap names could be exposed to supply disruptions and cost inflation.
While the restrictions won’t kick in until December, investors are already bracing for potential fallout.
Among the most vulnerable are Applied Materials, Lam Research, and KLA Corp – three US giants deeply embedded in the chipmaking supply chain.
Applied Materials Inc (NASDAQ: AMAT)
Applied Materials Inc stands out as one of the most exposed players in the semiconductor capital equipment space.
Its tools rely heavily on ultra-clean vacuum environments, often maintained by turbopumps that incorporate rare-earth-based permanent magnets.
These magnets – typically made from neodymium-iron-boron or samarium-cobalt alloys – are now subject to China’s export licensing regime.
“These materials are essential for atomic-scale precision, especially in sub-10nm geometries,” said Evercore ISI senior analyst Mark Lipacis.
If sourcing becomes constrained, AMAT could face delays in tool shipments or increased costs from alternative suppliers.
Applied Materials stock is currently up some 35% year-to-date, but the looming supply chain risk could dampen investor enthusiasm heading into 2026.
Lam Research Corp (NASDAQ: LRCX)
Lam Research stock has been the standout performer among its peers – boasting a 90% surge in 2025.
But its reliance on rare earths for etching and deposition tools could become a liability.
Techniques like chemical vapor deposition and atomic layer deposition require vibration-free environments – achieved using rare earth-enhanced components.
With China controlling more than 90% of global rare earth processing capacity, any disruption could ripple through LRCX’s production timelines.
In his research note, Lipacis cautioned “it is not clear whether alternative sources or raw materials could be procured,” underscoring the fragility of current supply chains.
For LRCX shares that are already priced for perfection, even minor hiccups could trigger outsized volatility.
KLA Corp (NASDAQ: KLAC)
KLA, known for its metrology and inspection systems, also finds itself in the crosshairs of China’s export crackdown.
These systems demand extreme precision, often facilitated by rare-earth-based magnets that stabilize internal components.
Yttrium, another restricted element, is used to prevent corrosion in these magnets, making it indispensable for long-term reliability.
While KLA stock has climbed over 60% this year, its exposure to rare earth-dependent parts could complicate future product rollouts.
The timing of China’s restrictions – just ahead of key diplomatic meetings – adds another layer of unpredictability.
Investors may need to reassess valuation multiples if supply chain risks begin to materialize.
Note that the Street’s mean target of $1,031 on KLA shares also doesn’t suggest any meaningful upside in them from here.
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