Goldman Sachs significantly raises its global WFE outlook; capacity and pricing power will drive divergence among Japanese equipment stocks amid strong orders

Overview

The report focuses on upward revisions to global wafer fab equipment (WFE) demand and diverging performance among Japanese semiconductor capital equipment companies. Goldman Sachs believes AI is driving broader semiconductor investment and that both global and Chinese WFE demand are stronger than previously expected. However, after rapid growth in order backlogs, companies' ability to expand capacity, deliver on time, and offset cost pressures through price increases will matter more than order strength alone.

Core views

Goldman Sachs meaningfully raises its global WFE market forecasts due to semiconductor manufacturers' increased willingness to invest and substantial growth in equipment makers' order backlogs: US$150.3bn for CY26, up 36% year over year; US$217.5bn for CY27, up 45%; and US$280.9bn for CY28, up 29%. The report believes expanding AI demand is driving broader semiconductor demand growth, and therefore raises forecasts across all application areas, with the largest adjustments in DRAM and logic/foundry. Capital expenditure in China also remains active, and the China team expects the WFE market to post double-digit growth in each year from CY26 through CY28. Although the share of China revenue for four Japanese front-end equipment companies is expected to decline gradually, the report still expects their absolute sales to China to continue growing. At a stage of strong demand and expanding order backlogs, the report focuses its company earnings assessments on three constraints: first, whether production capacity can expand in line with demand; second, whether manufacturing cycles and component procurement will lengthen delivery times; and third, whether companies can raise prices when component costs rise. The logic is that orders can only translate into sales when capacity and supply chains permit, while the success of price adjustments determines whether revenue growth translates into margin improvement. Therefore, even within the same WFE upcycle, sales and profit trajectories may diverge significantly among companies. Ulvac and Tokyo Seimitsu are particularly affected by capacity bottlenecks, and Goldman Sachs believes further earnings upgrades are less likely as they enter FY6/28 and FY3/28, respectively. Individual stock ratings also depend on two conditions: whether companies can achieve above-industry sales growth through technological changes, proprietary technologies, or market share gains, and whether revenue growth can drive meaningful margin improvement. All investment ratings remain unchanged. Goldman Sachs continues to rate Lasertec, DISCO, Tokyo Electron, and Ebara Buy, citing expansion of ACTIS's serviceable market, expansion of DISCO's serviceable market driven by advanced packaging, earnings improvement from Tokyo Electron's price increases, and Ebara's growth and potential share gains in the CMP market, respectively. HOYA also remains rated Buy. For DISCO, Goldman Sachs raises its FY3/28 and FY3/29 operating profit forecasts by 7% and 19%, respectively, reflecting continued expansion investment by OSATs, primarily in China, potential back-end capacity expansion accompanying WFE growth, and consumables growth. The FY3/27 forecast is lowered slightly due to revised selling and administrative expense assumptions. The company's limited recent disclosure regarding inquiries and orders had left expectations for longer-term earnings expansion without a catalyst, but contract liabilities reached ¥73bn at the end of 1Q3/27, up 46% quarter over quarter, which is viewed as evidence of increasing inquiries and orders that will translate into future revenue. The 12-month target price is raised from ¥100,000 to ¥105,000, with the Buy rating maintained. For Ebara, the report slightly lowers its FY12/26 operating profit forecast due to the product mix in the Precision Machinery/Electronics business, but raises its FY12/27 and FY12/28 forecasts by 6% and 9%, respectively, based on the new WFE outlook. Goldman Sachs continues to expect CMP equipment growth to outpace the WFE market. Although the company did not raise its full-year operating profit guidance because of a temporary decline in Energy business earnings, and the share price was weak following results, the report expects strong profit growth in the Precision Machinery/Electronics business after entering FY12/27. The Energy business should also expand further as profitability improves and orders recover, potentially driving overall earnings above market consensus. The target price remains ¥7,900; the FY12/27 cost of equity assumption is adjusted from 4.2% to 4.5% based on peers' current share prices. For Kokusai Electric, FY3/27-FY3/29 operating profit forecasts are raised by 1%, 10%, and 30%, respectively. The report believes the company has sufficient capacity flexibility in the near term: space remains at the Tonami plant that can be converted into cleanrooms, and additional shifts can also be introduced, so strong earnings growth is expected to continue through FY3/28. However, its valuation remains unattractive relative to front-end equipment peers. The Neutral rating is maintained, and the target price is raised from ¥10,000 to ¥10,500. For Ulvac, despite incorporating higher WFE forecasts, Goldman Sachs makes only minor adjustments to its FY6/27-FY6/29 operating profit forecasts, taking into account capacity constraints caused by longer material procurement cycles, the impact of price increases, and higher R&D expenses. The report believes earnings upside during this upcycle may be weaker than that of competitors and therefore widens the discount to the industry-average EV/EBITDA from 55% to 60%. The 12-month target price is lowered from ¥8,000 to ¥7,200, with the Sell rating maintained. For Advantest, the report assumes sales of SoC and memory testers will expand alongside the WFE market and raises its FY3/27-FY3/29 operating profit forecasts by 0%, 7%, and 15%, respectively. As capacity expansion plans have been brought forward, the company can maintain relatively strong earnings growth through FY3/28. However, test time per device does not appear to have changed significantly, and Goldman Sachs believes its earnings growth after FY3/28 is unlikely to be particularly strong among the companies covered. The Neutral rating is maintained, and the target price is raised from ¥40,000 to ¥43,000. For Lasertec, Goldman Sachs raises its unit sales forecasts for MATRICS and ACTIS, which are primarily used in DRAM and logic applications, and increases its FY6/27-FY6/29 operating profit forecasts by 1%, 2%, and 9%, respectively. ACTIS's serviceable market has expanded in practice, with applications increasing not only for ACTIS A200HiT but also for A300. The company's full-year order guidance is ¥300bn-¥400bn, while the report estimates that orders increased to nearly ¥100bn in 4Q6/26. It therefore believes FY6/27 orders are highly likely to exceed the top end of guidance and forecasts ¥425.6bn. The target price remains ¥70,000, with the Buy rating and inclusion on the APAC Conviction List maintained. For Tokyo Seimitsu, continued growth in OSAT investment, primarily in China, and potential back-end capacity expansion accompanying WFE growth lead Goldman Sachs to raise its FY3/28 and FY3/29 operating profit forecasts by 3% and 6%, respectively. However, despite strong prober orders and a high backlog, capacity upside remains very limited until the new Hanno plant, expected to commence operations around the end of 2027, is completed. Earnings expansion potential through FY3/28 is therefore constrained. The Sell rating is maintained, and the target price is raised from ¥16,000 to ¥16,500. For SCREEN Holdings, FY3/27-FY3/29 operating profit forecasts are raised by 1%, 8%, and 22%, respectively. The report believes the company has no evident capacity constraints and can expand sales in line with actual demand through FY3/28. However, its profit structure benefits from high-margin business with emerging Chinese customers, and as China's share of sales is expected to decline gradually, margin expansion will remain constrained. The Sell rating is maintained, and the target price is raised from ¥12,500 to ¥12,800. For HOYA, the report believes the company has sufficient capacity flexibility to respond to growth in demand for HDD and EUV mask blanks even before large-scale capital expenditure is implemented in FY3/29. It therefore raises its FY3/27-FY3/29 profit from ordinary operating activities forecasts by 1%, 3%, and 5%, respectively. Earnings in the two core businesses, Information Technology and Life Care, are expanding steadily, and Goldman Sachs continues to expect operating profit and EPS to exceed market consensus. The Buy rating is maintained, and the target price is raised from ¥35,000 to ¥36,000. For Tokyo Electron, in addition to higher WFE forecasts, Goldman Sachs incorporates the possibility that management's active implementation of product price increases will improve margins faster than expected, raising its FY3/27-FY3/29 operating profit forecasts by 4%, 9%, and 26%, respectively. Compared with peers, the company has met strong demand without significantly extending delivery lead times, which is viewed as a sign that price increases are progressing smoothly. Management had originally planned to achieve a gross margin of at least 50% by the end of FY3/28, but the report believes the likelihood of achieving this target early, in 4Q3/27, has increased. The Buy rating is maintained, and the target price is raised from ¥86,000 to ¥90,000.

Analysis framework

The report first revises its global and Chinese WFE market forecasts from the top down based on semiconductor manufacturers' capital expenditure, the diffusion of AI demand, and equipment makers' order backlogs. It then maps industry demand to each company's application areas and sales and operating profit forecasts. At the individual stock level, it compares capacity flexibility, supply chains and delivery lead times, and pricing power, then assesses performance divergence based on whether revenue growth exceeds the industry and how margins change. It finally adjusts earnings forecasts and 12-month target prices accordingly while maintaining existing ratings.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Supply-demand analysis of WFE demand, order backlogs, and equipment capacity

  The report treats semiconductor capital expenditure and equipment demand generated by AI as the demand side, and equipment makers' capacity, component supply, and delivery lead times as the supply side, assessing whether strong orders can translate into revenue on schedule.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Value Chain Transmission

  Transmission of AI demand to chip investment and front-end and back-end equipment

  The report revises industry and company forecasts along the path from expanding AI demand to increased DRAM and logic/foundry investment, WFE market growth, and expanding sales of front-end and back-end equipment.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Separate assessment of revenue growth and margin changes

  Goldman Sachs not only assesses whether equipment unit sales and revenue can outgrow the industry but also evaluates the effects of price increases, product mix, and component costs on margins, distinguishing companies with order growth alone from those capable of profit expansion.

• Competition and Strategy FrameworkMoat / competitive advantage

  Technological changes, proprietary technologies, and market share gains

  Individual stock ratings focus on whether companies can achieve above-industry sales growth through proprietary technologies, expansion of their serviceable markets, or market share gains.

• Valuation MethodEV/EBITDA valuation

  Relative EV/EBITDA valuation against the global semiconductor equipment industry

  The report uses an approximately 18x EV/EBITDA benchmark for the global semiconductor equipment industry for companies such as DISCO, applying premiums or discounts based on company profitability or competitive positioning. Ulvac's industry discount is widened from 55% to 60%.

• Valuation MethodPB valuation

  Ebara valuation based on the correlation between P/B and expected ROE

  Ebara's target price is determined based on the correlation between P/B and expected FY12/27 ROE, with the cost of equity assumption adjusted using peers' share prices.

Asset mapping & comparison

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

• DISCO (6146.T)

  Advanced packaging, OSAT capacity expansion, and consumables growth expand revenue and earnings opportunities; rated Buy.

  Strengths

  The serviceable market for advanced packaging is expanding, while a 46% quarter-over-quarter increase in contract liabilities indicates a stronger foundation for future orders and revenue.

  Weaknesses

  The company's disclosure regarding recent inquiries and orders is insufficiently clear, and its FY3/27 forecast was lowered slightly due to selling and administrative expense assumptions.

  Comparison

  The report expects its sales growth to benefit from advanced packaging and assigns it a valuation premium relative to the global equipment industry.

  Risks

  A slowdown in AI-related demand or loss of market share, weaker Chinese demand, tighter export controls, rapid yen appreciation, or a downturn in semiconductor capital expenditure.

• Ebara (6361.T)

  CMP market growth, potential market share gains, and a recovery in the Energy business support earnings above market consensus; rated Buy.

  Strengths

  CMP equipment is expected to continue outperforming the WFE market, while both the Precision Machinery/Electronics and Energy businesses have room for profit expansion.

  Weaknesses

  Energy business earnings temporarily declined, while the product mix in the Precision Machinery/Electronics business led to a slight reduction in the FY12/26 forecast.

  Comparison

  The report expects its earnings growth to exceed market consensus.

  Risks

  Greater competitiveness among Chinese CMP equipment makers, slow adoption of new semiconductor device technologies, and declines in crude oil and LNG prices or refining margins.

• Kokusai Electric (6525.T)

  Higher WFE demand and convertible cleanroom space support strong growth through FY3/28; rated Neutral.

  Strengths

  The Tonami plant has space available for cleanroom conversion and can also raise output through additional shifts.

  Weaknesses

  Even after earnings forecast upgrades, the report believes its valuation is insufficiently attractive relative to front-end equipment peers.

  Comparison

  The growth outlook is strong, but its valuation is less attractive than that of front-end equipment peers.

  Risks

  Changes in key customers' investment, adjustments to competitors' strategies, and further changes in export controls.

• Ulvac (6728.T)

  Strong industry demand is offset by material procurement cycles and capacity constraints; rated Sell.

  Strengths

  The new WFE outlook provides demand support for orders and revenue.

  Weaknesses

  Longer material procurement lead times, constrained capacity, and increased R&D expenses may result in weaker earnings upside than competitors.

  Comparison

  The discount to the industry-average EV/EBITDA is widened from 55% to 60%.

  Risks

  Capacity bottlenecks and longer procurement cycles may prevent strong orders from translating into revenue in a timely manner.

• Advantest (6857.T)

  Sales of SoC and memory testers expand with the WFE market; rated Neutral.

  Strengths

  Earlier capacity expansion should help sustain strong earnings growth through FY3/28.

  Weaknesses

  Test time per device has not increased significantly, and earnings growth after FY3/28 may not be particularly strong among the companies covered.

  Comparison

  Strong near-term growth, but limited relative growth advantage in the medium term.

  Risks

  If testing demand does not grow in step with WFE expansion, earnings forecasts may come under pressure.

• Lasertec (6920.T)

  Expanding ACTIS applications and orders that may exceed the upper end of guidance support the maintained Buy rating and inclusion on the APAC Conviction List.

  Strengths

  Applications for ACTIS A200HiT and A300 are expanding, and the FY6/27 order forecast of ¥425.6bn is above the upper end of guidance.

  Weaknesses

  The FY6/27-FY6/28 operating profit forecast upgrades are only 1% and 2%.

  Comparison

  The report views expansion of ACTIS's serviceable market as an important growth driver relative to peers.

• Tokyo Seimitsu (7729.T)

  OSAT and back-end capacity expansion boost orders, but capacity constraints limit earnings realization until the new plant commences operations; rated Sell.

  Strengths

  Prober orders are strong, and the order backlog remains high.

  Weaknesses

  Capacity upside is very limited until the new Hanno plant is expected to commence operations around the end of 2027.

  Comparison

  Compared with peers that have greater capacity flexibility, earnings expansion potential through FY3/28 is constrained.

  Risks

  The timing of the new plant's commencement of operations and capacity bottlenecks before then.

• SCREEN Holdings (7735.T)

  With no evident capacity constraints, the company can expand sales in line with actual demand, but margin expansion is affected by the sales mix; rated Sell.

  Strengths

  It has the production capacity to meet growth in actual demand through FY3/28.

  Weaknesses

  The share of high-margin business with emerging Chinese customers is expected to decline, limiting overall margin improvement.

  Comparison

  Sales growth can track demand, but margin flexibility is weaker than that of peers with stronger pricing power.

  Risks

  Changes in the composition of China sales may continue to constrain margin expansion.

• HOYA (7741.T)

  Demand for HDD and EUV mask blanks and growth in its two core businesses support earnings above consensus; rated Buy.

  Strengths

  The company already has capacity flexibility ahead of large-scale capital expenditure, while both the Information Technology and Life Care businesses are growing steadily.

  Comparison

  The report expects operating profit and EPS to exceed market consensus.

• Tokyo Electron (8035.T)

  Strong demand, stable delivery lead times, and active price increases jointly drive margin improvement; rated Buy.

  Strengths

  Unlike some peers, it has not significantly extended delivery lead times, price increases are progressing smoothly, and the gross margin target of at least 50% may be achieved early.

  Comparison

  Compared with peers constrained by delivery lead times, the company is better able to convert demand growth into sales and margin improvement.

  Risks

  If the effects of price increases or gross margin improvement materialize later than the report expects, the projected earnings upgrades may not be achieved.

Key data

• Global WFE market forecast—CY26US$150.3bnUp 36% year over year; forecast meaningfully raised
• Global WFE market forecast—CY27US$217.5bnUp 45% year over year; growth expected to continue accelerating
• Global WFE market forecast—CY28US$280.9bnUp 29% year over year
• China WFE marketDouble-digit growth throughout CY26-CY28Capital expenditure in China remains active
• DISCO contract liabilities¥73bnData as of the end of 1Q3/27, up 46% quarter over quarter
• DISCO operating profit forecast revisionsFY3/28 +7%; FY3/29 +19%FY3/27 lowered slightly due to revised selling and administrative expense assumptions
• Ebara operating profit forecast revisionsFY12/27 +6%; FY12/28 +9%FY12/26 lowered slightly due to product mix
• Kokusai Electric operating profit forecast revisionsFY3/27 +1%; FY3/28 +10%; FY3/29 +30%Near-term capacity flexibility through cleanroom conversion and additional shifts
• Advantest operating profit forecast revisionsFY3/27 0%; FY3/28 +7%; FY3/29 +15%Capacity expansion brought forward, but relative growth advantage may be less pronounced after FY3/28
• Lasertec FY6/27 order forecast¥425.6bnAbove the upper end of the company's full-year order guidance of ¥300bn-¥400bn
• Lasertec operating profit forecast revisionsFY6/27 +1%; FY6/28 +2%; FY6/29 +9%MATRICS and ACTIS unit sales forecasts raised
• Tokyo Seimitsu's new Hanno plantExpected to commence operations around the end of 2027Capacity upside is expected to remain limited before operations commence
• SCREEN Holdings operating profit forecast revisionsFY3/27 +1%; FY3/28 +8%; FY3/29 +22%Sales can grow with demand, but a declining share of China revenue limits margin expansion
• HOYA profit forecast revisionsFY3/27 +1%; FY3/28 +3%; FY3/29 +5%Refers to forecasts for profit from ordinary operating activities
• Tokyo Electron operating profit forecast revisionsFY3/27 +4%; FY3/28 +9%; FY3/29 +26%Incorporates the possibility that margin improvement from price increases will be realized more quickly
• Tokyo Electron gross margin targetAt least 50%The original target was to achieve this by the end of FY3/28; the report believes it may be achieved early in 4Q3/27

Impact & implications

The report believes the foundation of industry demand in the WFE upcycle has strengthened further, with DRAM, logic/foundry, and the Chinese market being the main sources of forecast upgrades. However, order growth will not translate evenly into earnings across companies. Companies with scalable capacity, shorter delivery lead times, and pricing power are more likely to achieve both revenue and margin growth. Those affected by capacity bottlenecks, product mix, or a declining share of high-margin China business may lag peers in earnings upside even if orders remain strong.

Risks

• A slowdown in AI-related semiconductor demand or equipment companies losing market share.
• A slowdown in Chinese demand or further tightening of semiconductor equipment export controls.
• Rapid appreciation of the yen against the US dollar.
• Semiconductor capital expenditure entering a downcycle.
• Greater competitiveness among Chinese CMP equipment manufacturers.
• Slower-than-expected adoption of new semiconductor device technologies.
• Declines in crude oil and LNG prices or refining and petrochemical margins, affecting Ebara's Energy business.
• Changes in key customers' investment plans or competitors' strategies.
• Capacity, component procurement, and delivery lead-time bottlenecks preventing orders from translating into revenue in a timely manner.
• A declining share of high-margin China business may constrain SCREEN Holdings' margin expansion.

What to watch

• Track whether the global WFE market can achieve the forecast growth of 36% in CY26, 45% in CY27, and 29% in CY28.
• Monitor whether China's WFE capital expenditure can continue posting double-digit growth in CY26-CY28, as well as changes in Japanese equipment companies' share and absolute amount of sales to China.
• Compare actual progress in equipment makers' capacity expansion flexibility, cleanroom conversion capabilities, and additional shifts.
• Monitor component procurement cycles, manufacturing lead times, and the pace at which order backlogs translate into sales.
• Track whether companies can offset rising component costs through price increases and convert revenue growth into margin improvement.
• Monitor whether Lasertec's FY6/27 orders can exceed the ¥400bn upper end of guidance and approach Goldman Sachs's forecast of ¥425.6bn.
• Monitor whether Tokyo Seimitsu's new Hanno plant can commence operations as planned around the end of 2027.
• Monitor whether Tokyo Electron can achieve a gross margin of at least 50% early in 4Q3/27.