Predicting that Applied Materials (AMAT) will be a major beneficiary of increased spending by China on wafer fab equipment, Citi upgraded the stock to Buy from Neutral. Applied Materials' stock can rally 20% from current levels, the firm stated.

IMPORTANT DRIVER: Increased spending by China on wafer fab equipment is poised to "become an important driver" for the sector, contended Citi analyst Atif Malik. The Asian country consumes half of the world's chips, but Chinese chip factories, or fabs, only account for about 3% of worldwide sales, Malik explained. Given Applied Materials' 25% market share in China, the company should benefit from increased spending by Chinese enterprises on wafer fab equipment, Malik wrote. Predicting that the shares can rise 20% from current levels, the analyst raised his price target on the stock to $28 from $20.

AMKOR DOWNGRADE: Malik downgraded another name in the sector, Amkor Technology (AMKR), to Sell from Neutral, stating that the company is encountering increased competition from TSMC (TSM) in packaging, and its China sales and gross margins are being hurt by the consolidation of assembly and test companies in the Asian country. Malik continues to identify Lam Research (LRCX) as his favorite name in the sector.

PRICE ACTION: In early trading, Applied Materials rose 1% to $23.72, while Lam Research also added about 1% and Amkor slid over 3%.