Leading-edge capacity expansion accelerates, and mature wafer foundry supply and demand continue to improve

Overview

This report focuses on the global wafer foundry industry. Its core conclusion is that leading-edge capacity expansion is faster than previously expected, while mature process foundry supply-demand conditions and pricing continue to improve. UBS believes the main sources of the upward revisions are TSMC N2 expansion, execution recovery at Samsung Foundry and Intel, and China’s N7 capacity growth; on the mature process side, better supply discipline, rising demand for power semiconductors in AI servers, and production running below end-market consumption should help the industry cycle improve from 2026 onward.

Core views

First, leading-edge expansion is accelerating: FinFET industry capacity is expected to grow 13% in 2026 and 12% in 2027. Second, mature process pricing is more stable: some Chinese foundries may raise prices by around 10% or more on multiple products in 2026, and Vanguard could see a more visible increase in blended ASP starting in Q2 2026 due to tighter utilization and stronger PMIC demand. Third, the mature process cycle is improving: 8-inch and mature 12-inch utilization rates are expected to recover or stay at high levels, while more power-semiconductor content in AI servers provides demand support. Fourth, in stock selection, UBS continues to prefer TSMC and UMC and remains Neutral on GlobalFoundries and other mature foundry peers.

Analysis framework

The report assesses the foundry industry cycle by updating capacity forecasts, supply-demand models, price trend observations, and peer valuation comparisons, and it forms stock recommendations by combining process-node trends, regional competition, end-demand conditions, and company execution.

Methodology notes

• Industry supply and demand analysisWafer foundry capacity and utilization forecast

  Break down capacity, demand, and utilization by process node and wafer size

  The report separately discusses capacity and utilization across FinFET, N2, N4, China N7, 8-inch, 12-inch 28/40nm, and 12-inch 90/65nm to judge the pace of leading-edge expansion and the turning point in the mature process cycle.

• Price cycle analysisMature process ASP trend tracking

  Pricing resilience driven by supply-demand improvement and rationalized competition

  The report tracks pricing negotiations at Chinese and non-Chinese foundries and uses ASP changes at companies such as Vanguard and UMC to judge whether mature process pricing is entering an improvement phase.

• Stock rating frameworkUBS Forecast Stock Return definition

  12-month expected price appreciation plus dividend yield

  UBS typically uses a 12-month investment horizon for its target prices and ratings, and defines FSR as the expected share-price appreciation over the next 12 months plus dividend yield.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• GLOBALFOUNDRIES INC (GFS.US)

  Covered name in the report; mature-process wafer foundry peer

  Strengths

  Benefits from improved mature-process supply and demand, pricing resilience, and rising demand for power semiconductors in AI servers.

  Weaknesses

  The report does not list it as a top pick, and the Neutral rating suggests limited relative-return upside or valuation appeal.

  Comparison

  Within mature-process foundries, UBS prefers UMC and places GlobalFoundries, Vanguard, PSMC, SMIC, and Hua Hong all at Neutral.

  Risks

  Weak consumer electronics demand, less-than-expected price increases in mature processes, renewed competition, and valuation volatility in technology stocks.

• TSMC

  Leading advanced-process foundry and one of the industry's preferred names

  Strengths

  N2 expansion is faster than previously expected, with installed capacity forecast at 90 kwpm by end-2026 and 140 kwpm by end-2027; UBS reiterates Buy.

  Weaknesses

  Rapid expansion may create capital expenditure and execution pressure.

  Comparison

  Compared with mature-process foundries, TSMC benefits more directly from advanced process and AI demand.

  Risks

  Volatility in advanced-process demand, customer concentration, geopolitical risk, and capital return risk from heavy capex.

• UMC

  Preferred mature-process foundry

  Strengths

  UBS prefers UMC because earnings growth should be steadier after depreciation peaks in 2026-2027.

  Weaknesses

  Its 2026 price increases may be less pronounced than those of some peers.

  Comparison

  Within mature-process foundries, it is more favored by UBS than Neutral names such as GlobalFoundries.

  Risks

  Weak consumer demand, limited pricing improvement, and recurring mature-process competition.

• Vanguard

  Mature-process foundry peer

  Strengths

  Tighter utilization and stronger PMIC demand could lead to a more visible increase in blended ASP starting in Q2 2026.

  Weaknesses

  The rating remains Neutral, indicating that stock or fundamental upside has not yet clearly outpaced peers.

  Comparison

  Short-term ASP upside may be stronger than UMC’s, but its overall stock rating is still below UBS’s preferred UMC.

  Risks

  PMIC demand falling short of expectations, failed price negotiations, and a decline in utilization.

• SMIC

  Chinese wafer foundry, involved in N7 expansion and mature-process supply

  Strengths

  China’s N7 capacity expansion could support domestic cloud AI compute, and tight mature-process supply may support pricing.

  Weaknesses

  Execution uncertainty is high due to technology, equipment, and geopolitical constraints.

  Comparison

  It is Neutral alongside Hua Hong and is not a UBS top pick.

  Risks

  Sanctions restrictions, execution risk in expansion, domestic competition, and demand volatility.

• Hua Hong

  Chinese mature-process foundry peer

  Strengths

  May benefit from price increases and improved supply-demand conditions in China’s mature-process segment.

  Weaknesses

  The report rates it Neutral and does not indicate clear excess-return potential.

  Comparison

  Also Neutral, alongside GlobalFoundries, Vanguard, PSMC, and SMIC.

  Risks

  Mature-process competition, weak consumer demand, and insufficient durability of price improvement.

Key data

• FinFET industry capacity growth forecast2026E +13%, 2027E +12%The 2026 forecast was raised from the prior +10% to +13%.
• TSMC N2 installed capacity forecast90 kwpm by end-2026, 140 kwpm by end-2027One of the main sources of the leading-edge capacity upgrade.
• Samsung Foundry N4 capacity forecast90 kwpm by end-2026, 100 kwpm by end-2027The prior estimate was 80 kwpm; the upgrade reflects demand from HBM base dies and Groq 3 LPUs.
• China N7 capacity forecast30 kwpm in 2026, 50 kwpm in 2027Including SMIC, mainly to serve domestic cloud AI compute demand.
• Chinese mature process foundry pricesSome products may see price increases of around 10% or more in 2026UBS believes tight supply and more rational competition support pricing.
• Vanguard blended ASP forecastIncrease by 2-3% in Q2 and Q3 2026, respectivelyDriven by tighter utilization and stronger PMIC demand.
• 8-inch foundry utilization forecast81% in 2025, 84% in 2026E, and above 90% in 2027EReflects improvement in mature process supply and demand.
• 12-inch 28/40nm utilization forecastRemain above 80% in 2026-2027ESlightly affected by weak consumer demand in 2026, but overall still resilient.

Impact & implications

For investors, the report supports the view that the wafer foundry industry will see improving conditions from 2026 onward, but the degree of benefit varies by company. Leading-edge expansion mainly benefits companies with technical and customer advantages; mature process improvement is more favorable for companies with tight utilization, peaking depreciation pressure, and stronger pricing flexibility. For GlobalFoundries, the industry supply-demand improvement is a positive factor, but UBS still classifies it as Neutral in the available text, suggesting that valuation, growth optionality, or relative attractiveness may be less compelling than for the preferred names.

Risks

• Technology companies have highly volatile business models and low predictability, and valuations may be difficult to explain with traditional or non-traditional metrics.
• Weak consumer electronics demand could delay the recovery in mature processes in the second half of 2026.
• Fast leading-edge expansion could create a larger-than-expected supply increase or pressure on returns from capital spending.
• Price increases or negotiation progress at Chinese and non-Chinese foundries may fall short of expectations.
• Geopolitical tensions, sanctions, market access, and regulatory restrictions may affect the semiconductor supply chain and related stock valuations.

What to watch

• Whether TSMC’s actual N2 expansion pace reaches 90 kwpm by end-2026 and 140 kwpm by end-2027.
• Whether Samsung Foundry and Intel execution improves as expected, and whether N4/HBM base dies/Groq 3 LPUs demand remains sustained.
• Whether China’s N7 capacity expands on schedule to 30 kwpm in 2026 and 50 kwpm in 2027.
• The size of mature-process foundry price hikes in 2026 and customer acceptance, especially among Chinese foundries and Vanguard.
• Whether 8-inch utilization rises further from 84% in 2026 to above 90% in 2027.
• Whether consumer electronics demand recovers in the second half of 2026 or continues to weigh on 12-inch 28/40nm utilization.