Bernstein has raised its forecast for the semiconductor equipment sector, expressing optimism about memory chips and China’s capacity expansion.

Overview

Bernstein has released its latest global semiconductor capital equipment report, significantly revising upward its forecast for worldwide wafer fab equipment (WFE) spending through 2026–2028. The report attributes this outlook to robust expansion plans for memory chips—particularly DRAM—in both China and non‑China markets, as well as growing demand for advanced packaging, positioning the semiconductor equipment sector at the cusp of an upcycle that could persist for several years. In light of these developments, the firm has raised its price targets for Lam Research and KLA, while maintaining an Outperform rating on Applied Materials, ASML, Tokyo Electron, and Chinese domestic equipment suppliers such as NAURA and AMEC.

Core views

Global WFE forecasts have been comprehensively revised upward, with memory and China serving as the primary growth drivers. The research report has raised its 2026 global WFE forecast from USD 141 billion to USD 148 billion (up 21% year over year), increased the 2027 projection from USD 158 billion to USD 175 billion (up 18%), and significantly boosted the 2028 estimate from USD 164 billion to USD 198 billion (up 13%). These revisions largely reflect improved expectations for memory‑chip capacity expansion, particularly in the DRAM segment. In the Chinese market, Yangtze Memory Technologies (YMTC) and CXMT are signaling more aggressive capacity‑expansion plans, while CXMT’s anticipated IPO is expected to provide additional funding to accelerate production ramp‑up. Outside China, DRAM manufacturers are also stepping up capital spending, and demand for wafer-level packaging (WLP) equipment is projected to grow from USD 6 billion in 2025 to USD 11 billion by 2028. Stock‑specific views and valuation adjustments: Favored are names with exposure to memory and leading‑edge process nodes. Among U.S. equipment stocks, the firm’s top pick is Applied Materials (AMAT), thanks to its broad footprint across front‑end logic, DRAM, and packaging segments and relatively attractive valuations; next is Lam Research (LRCX), which stands to benefit from key inflection points in GAA, HBM, and NAND upgrades, with its price target raised to USD 340. Although KLA (KLAC) has posted slightly slower growth this year, it boasts the strongest exposure to cutting‑edge logic processes and robust structural growth momentum, prompting a price‑target upgrade to USD 1,975. In Europe, ASML remains the preferred choice, with sales expected to post a CAGR of 23% from 2025 to 2028, driven by intensive use of EUV and DUV tools in advanced logic and DRAM applications; its price target is maintained at EUR 1,700. In Japan, Kokusai Electric and Tokyo Electron (TEL) are favored, as both stand to gain from rising memory‑related capital expenditures; Kokusai’s leadership in batch ALD technology gives it a distinct advantage in GAA node transitions. Chinese domestic equipment makers: Maintaining an optimistic outlook, with accelerated domestic substitution anticipated. For Chinese semiconductor equipment companies, the report reaffirms its Outperform rating on AMEC, NAURA, and Piotech. Channel checks indicate that domestic capacity‑expansion plans for DRAM, NAND, and advanced logic exceed prior guidance, with AMEC raising its annual order‑growth forecast from 30% to 50%. The firm believes that, as AI and DRAM/HBM demand becomes increasingly localized, 2026 will be a strong year for Chinese equipment suppliers, with any near‑term pullbacks presenting buying opportunities. Current preference rankings—AMEC > Piotech > NAURA—are primarily based on their higher exposure to the memory business.

Analysis framework

A bottom-up approach combining supply-and-demand analysis with channel checks. Institutional analysts first validate the actual capital expenditure intentions of downstream foundries and IDMs by closely monitoring the latest earnings guidance from major semiconductor equipment suppliers and conducting channel checks. They focus on identifying signs of a cyclical recovery in the DRAM and NAND markets, particularly assessing how improved profitability and enhanced IPO‑raising capabilities among Chinese manufacturers (YMTC, CXMT) are underpinning their expansion plans. Next, they disaggregate demand for specific equipment types—such as EUV lithography tools, ALD systems, and etching machines—by factoring in technology node transitions (e.g., GAA, HBM, advanced packaging), thereby deriving growth rates for each sub‑segment. Finally, these macro‑ and industry‑level forecasts are translated into firm‑specific revenue models; by comparing companies’ exposure across key growth drivers—such as memory, market share in China, and advanced logic—they refine investment preferences and adjust target price estimates accordingly.

Methodology notes

• Industry/ Sector Analysis FrameworkSupply-and-Demand Framework

  The cyclical nature of the semiconductor equipment industry is primarily driven by capital expenditures (CapEx) at downstream wafer fabrication plants, which in turn depend on end‑market demand—ranging from AI to smartphones and PCs—and inventory levels.

  The research report assesses when memory manufacturers will embark on a new round of capacity expansion by analyzing the supply–demand equilibrium in the DRAM and NAND markets, thereby forecasting growth in upstream equipment orders. This exemplifies a standard framework for semiconductor-cycle analysis.

• Industry/ Sector Analysis FrameworkTransmission across the upstream, midstream, and downstream segments of the industrial chain

  Value chain transmission flows from end‑use applications (AI/HBM) to chip manufacturing (DRAM/Logic) and further upstream to equipment production (WFE).

  The report notes that demand for AI and HBM is driving DRAM technology upgrades—such as the transition to the 1c node—thereby intensifying lithography and deposition processes, which in turn directly benefits equipment suppliers like ASML and Applied Materials.

• Valuation MethodologyPE/PEG valuation

  Use the price-to-earnings (P/E) ratio or the PEG ratio to assess the valuation fairness of growth-oriented technology stocks.

  In comparing AMAT, LRCX, and KLAC, the research report highlights their relative valuation levels—noting, for example, that AMAT is the most attractively valued—and uses their projected earnings growth (EPS Estimates) to justify the reasonableness of the target price.

Asset mapping & comparison

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

• Lam Research (LRCX)

  Beneficiary: Upgraded target price to $340, benefiting from NAND technology upgrades and the inflection point in HBM and GAA technologies.

  Strengths

  Outstanding execution capabilities, with significant exposure in the NAND and advanced packaging sectors.

  Weaknesses

  Valuation is relatively high.

  Comparison

  Compared to AMAT, its valuation is higher, but it boasts robust growth momentum.

• KLA (KLAC)

  Beneficiary: Raised the target price to $1,975, with the strongest exposure to leading-edge process technologies.

  Strengths

  Driven by structural growth, with a solid competitive position and low replacement risk in China.

  Weaknesses

  Due to longer delivery lead times, its growth rate this year has been slightly slower than that of its peers.

  Comparison

  Strong growth is expected in 2027, once cleanroom capacity is fully in place.

• Applied Materials (AMAT)

  Top Pick: Maintaining a target price of $525, with the most attractive valuation.

  Strengths

  It has the most comprehensive exposure across front-end logic, DRAM, and packaging, with the lowest valuation among the three.

  Comparison

  Best value for money, with China business risks now reduced.

• ASML

  Europe’s top pick: Maintaining a target price of EUR 1,700; the primary beneficiary of enhanced lithography intensity.

  Strengths

  Driven by both EUV and DUV technologies, DRAM’s advanced node (1c) delivers high lithography intensity.

  Weaknesses

  Revenue in the China segment is expected to decline, while demand in non-China regions remains robust.

  Comparison

  High long-term growth certainty, with a CAGR of 23%.

  Risks

  Export restrictions stemming from geopolitical tensions

• Tokyo Electron (TEL)

  Japan’s Top Pick: Maintaining an Outperform rating, benefiting from rising storage CapEx.

  Strengths

  The product portfolio is broad, and the depreciation of the Japanese yen helps enhance competitiveness.

  Weaknesses

  Facing the risk of losing market share in China

  Comparison

  Outperforms Screen, owing to its larger exposure in the storage sector.

• Kokusai Electric

  Japan’s Top Pick: Maintaining an Outperform rating; a leading player in batch ALD technology.

  Strengths

  In GAA-node processes, the adoption rate of ALD is increasing across the board, benefiting the NAND recovery.

  Weaknesses

  Recent guidance is conservative, but outcomes may exceed expectations.

  Comparison

  The weak stock price is seen as a good entry point.

• AMEC (Semiconductor Manufacturing International Corporation)

  China’s Top Pick: Maintain Outperform rating, target price CNY 500

  Strengths

  Leading dry etching technology, rapid expansion of deposition business, and high global recognition.

  Comparison

  Currently ranked first in preference due to its high exposure to the storage sector.

• NAURA (Northern Huachang)

  China Select: Maintaining Outperform rating, with a target price of CNY 680.

  Strengths

  It boasts the most comprehensive product portfolio (including deposition, etching, cleaning, and more) and a diversified customer base.

  Comparison

  Benefiting from the accelerated pace of domestic substitution, its current preference remains slightly lower than that of AMEC.

• Piotech (Tuojing Technology)

  China Select: Maintaining Outperform rating, with a target price of CNY 580.

  Strengths

  Focuses on thin-film deposition, with expansion in advanced packaging and hybrid bonding equipment.

  Comparison

  The company has a strong track record of product innovation, benefiting from domestic substitution.

Key data

• 2026 Global WFE ForecastUS$148 billionRevised upward from the previous figure of USD 141.0 billion, representing a year-on-year increase of 21%.
• 2028 Global WFE ForecastUS$198 billionA substantial upward revision from the previous figure of US$164 billion, bringing it close to the US$200 billion threshold.
• 2027 DRAM WFE ForecastUS$57 billionRevised upward from the previous figure of US$48 billion, reflecting an accelerated expansion in storage capacity.
• ASML’s 2025–2028E Sales CAGR23%Driven by the high penetration of EUV and DUV technologies in advanced logic and DRAM processes.
• AMEC’s Order Growth Guidance50% YoYThe upward revision from the previous 30% reflects robust expansion in China’s memory production capacity.

Impact & implications

The research report argues that the semiconductor equipment sector’s upcycle may prove more durable than market expectations and exhibit structural growth dynamics. For investors, this implies that earnings forecasts for leading companies in the space still have room to be revised higher. Chinese domestic equipment manufacturers are poised to accelerate their market share gains, benefiting from the dual tailwinds of import substitution and expanded domestic memory production capacity. Meanwhile, although valuations currently stand at historically elevated levels, given the multi-year cyclical outlook, these elevated valuations are both sustainable and, in some cases, justified.

Risks

• Geopolitical Risks: U.S. export controls could impact equipment sales in the China region.
• Industry Cyclical Fluctuations: If end-market demand—such as for AI and consumer electronics—falls short of expectations, wafer fabs may scale back their capital expenditures.
• Valuation Risk: Valuations of some securities are at historically high levels; should earnings growth decelerate, they may face downward pressure.

What to watch

• Progress of IPOs by Chinese memory chip manufacturers (YMTC, CXMT) and the subsequent implementation of capacity expansion plans
• Order guidance for the next quarter from major equipment suppliers and changes in the revenue contribution from the China region.
• Changes in DRAM prices and inventory levels to assess the sustainability of the memory cycle.
• Progress in alleviating capacity bottlenecks in advanced packaging (such as HBM, CoWoS, etc.)