WFE Upcycle Further Strengthens, with 2027 to 2028 Forecasts Sharply Revised Upward
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WFE Upcycle Further Strengthens, with 2027 to 2028 Forecasts Sharply Revised Upward
Bernstein expects global WFE to grow by about 75% over two years, driven by DRAM, NAND, advanced logic, foundry, and China capacity expansion, and broadly raises target prices for U.S. equipment leaders.
- The 2027 global WFE forecast was raised from $175bn to $204bn, representing year-over-year growth of about 33%.
- The 2028 global WFE forecast was raised from $198bn to $259bn, representing year-over-year growth of about 27%.
- DRAM WFE is expected to reach $69bn and $96bn in 2027 and 2028, respectively, becoming one of the main sources of forecast upgrades.
- China WFE demand is expected to reach $57bn, $73bn, and $101bn in 2026 to 2028, while revenue for domestic equipment vendors is expected to grow 41% to $16bn in 2026.
- The preference order for U.S. equipment stocks is AMAT, LRCX, and KLAC, with all three companies maintaining Outperform ratings.
- ASML is the top pick in Europe, with USD-denominated revenue expected to grow at a compound annual rate of about 34% from 2025 to 2028.
- The preference order for Chinese equipment stocks is NAURA, AMEC, and Piotech, with the recent pullback viewed as a positioning opportunity ahead of a rebound in the second half of 2026.
Report interpretation
Overview
This report covers the global semiconductor capital equipment industry and major equipment companies in the United States, Japan, Europe, and China. Bernstein substantially raises its global wafer fabrication equipment spending forecasts for 2026 to 2028, arguing that the current equipment investment upcycle is sustainable. Demand growth is not confined to a single application or region, but is jointly driven by non-China memory investment, China's logic and foundry capacity expansion, advanced packaging, artificial intelligence demand, and tightening supply-demand conditions in mature nodes.
Core views
The core judgment is that global WFE will continue to grow rapidly in 2027 to 2028, with a cumulative two-year increase of about 75%. Memory, especially DRAM, contributes the largest incremental growth, while the NAND upgrade cycle will also benefit etch, deposition, and other equipment suppliers; advanced logic and foundry are supported by artificial intelligence, high-performance computing, GAA, and advanced packaging. China's market is temporarily dragged down in 2026 by DUV supply shortages and weak imports, but revenue for domestic equipment vendors is expected to grow rapidly, and capacity expansion in memory, advanced logic, and mature logic is expected to accelerate significantly in 2027 to 2028. In regional stock selection, AMAT is the top pick in the United States, followed by LRCX and KLAC; Kokusai and Tokyo Electron are preferred in Japan; ASML is the top pick in Europe; and NAURA, AMEC, and Piotech are preferred in China.
Analysis framework
The report combines the latest guidance from major equipment vendors, channel checks, and capacity expansion plans to break down WFE demand by year, region, and application, and transmits the revised industry spending forecasts into company revenue, margins, earnings per share, and target prices. Stock valuation primarily uses forward P/E ratios, while also comparing valuation premiums relative to SOX and SPX, and ranking companies based on product mix, technology barriers, risks from domestic substitution in China, and order conversion cycles.
Methodology notes
Break down wafer fabrication equipment spending by application and region
Forecasts DRAM, NAND, logic, and foundry separately, and further distinguishes between China and non-China markets to identify the sources of growth and forecast revisions in each year.
Use supply-chain research to verify capacity expansion plans
Cross-validates equipment vendor management guidance with channel checks in areas such as China memory, advanced logic, and mature logic, while considering the approximately one-year delivery cycle from order to revenue recognition.
Adjust financial forecasts based on product and end-market exposure
Revises revenue, operating margin, and earnings per share based on each company's revenue exposure to advanced logic, DRAM, NAND, packaging, lithography, process control, and other areas.
Compare equipment companies' valuation premiums versus the industry and the broader market
The report uses forward P/E ratios and their premiums relative to SOX and SPX to assess valuation levels, and determines target prices by incorporating growth sustainability and competitive advantages.
Apply a target valuation multiple to forward earnings
ASML uses a 40x target P/E multiplied by Q5 to Q8 earnings per share of EUR 62.6 to derive a target price of EUR 2,500, and converts this into the target price for U.S.-listed shares based on the exchange rate.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Applied Materials (AMAT)Top pick among U.S. semiconductor equipment stocks, Outperform, target price $675
- Strengths
- High exposure to advanced logic, DRAM, and advanced packaging; product served available market expansion, services business, and capital returns also provide support.
- Weaknesses
- Valuation is at a high level, and China and mature-node businesses remain affected by policy and cyclicality.
- Comparison
- Ranks first among AMAT, LRCX, and KLAC, combining broader growth exposure with a relatively lower valuation.
- Risks
- WFE growth below expectations, escalation of export restrictions, delays in advanced-node capacity expansion, and valuation compression.
- Lam Research (LRCX)Second choice among U.S. equipment stocks, Outperform, target price $385
- Strengths
- Benefits from GAA, HBM, advanced packaging, and NAND upgrades; strong execution and sensitivity to memory recovery.
- Weaknesses
- Valuation is higher than AMAT's, and it is more sensitive to changes in memory capital expenditure.
- Comparison
- Stronger growth leverage but more expensive; the report's preference order places it after AMAT and before KLAC.
- Risks
- Delays in NAND upgrades, domestic substitution in China, reversal of the memory cycle, and high valuation.
- KLA (KLAC)Outperform, target price $250
- Strengths
- Strong competitive position in process control, among the highest exposures to advanced logic, relatively lower risk from China substitution, and disciplined capital allocation.
- Weaknesses
- Longer delivery cycles cause near-term growth to lag some peers, and it has the highest valuation premium.
- Comparison
- Ranks behind AMAT and LRCX in the near term, but growth may strengthen significantly after 2027 as cleanroom capacity comes online.
- Risks
- Delays in customer production ramps, order-to-revenue timing mismatch, and pullback from high valuations.
- ASML Holding NV (ASML)Top pick in European semiconductor equipment, Outperform, target price EUR 2,500 or $2,859 for U.S.-listed shares
- Strengths
- Unique competitive position in EUV, and benefits from rising lithography intensity in DRAM and advanced logic; both EUV and DUV have strong growth prospects.
- Weaknesses
- China revenue share is expected to fall to about 20% in 2026, while capacity expansion and delivery of complex equipment require high execution.
- Comparison
- Clear top pick within European coverage, with revenue expected to grow at a compound annual rate of about 34% from 2025 to 2028.
- Risks
- Export controls, declining China revenue, delays in customer capacity expansion, and EUV capacity ramp-up falling short of expectations.
- Kokusai Electric (6525.JP)Top pick among Japanese equipment stocks, Outperform, target price ¥12,420
- Strengths
- Leader in batch ALD, benefiting from advanced nodes, GAA, NAND, and China DRAM capacity expansion.
- Weaknesses
- Business is highly sensitive to memory capital expenditure and China demand.
- Comparison
- The preference order for Japanese equipment stocks is Kokusai, Tokyo Electron, and Screen.
- Risks
- Slowdown in memory capacity expansion, domestic substitution in China, and execution risks in capacity expansion.
- Tokyo Electron (8035.JP)Core recommendation among Japanese equipment stocks, Outperform, target price ¥79,300
- Strengths
- Covers six major equipment areas and benefits from stronger memory capital expenditure, improved price competitiveness after yen depreciation, and margin improvement.
- Weaknesses
- Previously lost share in China and is dependent on recovery in the Chinese market.
- Comparison
- Ranks second in the Japanese market, with lower memory exposure than Kokusai but a broader product portfolio.
- Risks
- China share recovery below expectations, exchange-rate changes, and memory cycle volatility.
- Screen Holdings (7735.JP)Market-Perform, target price ¥15,000
- Strengths
- Leader in cleaning equipment, with exposure to logic capacity expansion; valuation is among the lower levels within coverage, and panel-level packaging may provide incremental upside.
- Weaknesses
- Lacks a clear proprietary growth driver, cleaning intensity has not risen significantly, and market competition is intense.
- Comparison
- Ranks behind Kokusai and Tokyo Electron in the preference order for Japanese equipment stocks.
- Risks
- Declining China revenue share dragging on margins, and global and Chinese competitors taking share.
- NAURA (002371.CH)Top pick among Chinese equipment stocks, Outperform, target price CNY 680
- Strengths
- China's domestic WFE leader, with products covering deposition, etch, thermal processing, and cleaning; broad customer base and about 40% exposure to advanced logic.
- Weaknesses
- The relationship between the current market price and the report's target price indicates that valuation and adjusted-price bases need to be checked carefully.
- Comparison
- The preference order for Chinese equipment stocks is NAURA, AMEC, and Piotech, with the greatest upside expected from advanced logic capacity expansion.
- Risks
- Capacity expansion pace below channel expectations, intensifying competition, valuation compression, and delays in customer qualification.
- AMEC (688012.CH)Outperform, target price CNY 335.57
- Strengths
- Technologically strong in dry etch and rapidly expanding ALD, LPCVD, and EPI deposition products, benefiting from domestic substitution and share gains.
- Weaknesses
- The target price was mechanically adjusted on a per-share basis due to a stock dividend in 2026, which can easily be confused with historical price and earnings bases.
- Comparison
- Ranks second among Chinese equipment stocks, with high technology recognition but less product breadth than NAURA.
- Risks
- New product qualification below expectations, high valuation, intensifying competition, and delays in capacity expansion plans.
- Piotech (688072.CH)Outperform, target price CNY 580
- Strengths
- Focused on PECVD, HDPCVD, SACVD, and ALD, while expanding into wafer-to-wafer and chip-to-wafer hybrid bonding equipment.
- Weaknesses
- Scale and product breadth are relatively weaker than NAURA's, with higher dependence on commercialization of new products.
- Comparison
- Ranks third among Chinese equipment stocks, with differentiated opportunities from advanced packaging and deposition equipment innovation.
- Risks
- Hybrid bonding volume ramp below expectations, delays in customer certification, competition, and valuation risks.
- Lasertec (6920.JP)Outperform, target price ¥54,000
- Strengths
- About 50% share in the mask inspection market and a unique position in actinic inspection; ACTIS 200HiT is expected to drive revenue re-acceleration.
- Weaknesses
- Growth depends on adoption of next-generation inspection equipment by fabs.
- Comparison
- Technology barriers are significant, but it faces a competitive threat from KLA potentially entering the actinic inspection market.
- Risks
- KLA launching competing products, delays in customer adoption, and high valuation.
Key data
- 2026 Global WFE$154bn, up about 26% year over yearThis measure is used in multiple places later in the report; the front-page summary also lists $148bn, indicating an inconsistency in the original materials.
- 2027 Global WFE$204bn, up about 33% year over yearThe previous forecast was $175bn, up about 18% year over year.
- 2028 Global WFE$259bn, up about 27% year over yearThe previous forecast was $198bn, up about 13% year over year.
- 2027 to 2028 DRAM WFE$69bn and $96bnThe previous forecasts were $57bn and $71bn, respectively.
- 2027 to 2028 NAND WFE$20bn and $29bnThe previous forecasts were $18bn and $23bn, respectively.
- 2027 to 2028 Logic and Foundry WFE$104bn and $124bnThe previous forecasts listed in the charts were $89bn and $93bn, respectively.
- 2026 to 2028 China WFE$57bn, $73bn, and $101bn2026 was lowered by $1.1bn due to DUV shortages, while 2027 and 2028 were raised by $6.3bn and $24.0bn, respectively.
- 2026 Revenue of Chinese Domestic Equipment Vendors$16bn, up 41% year over yearChina WFE growth is expected to be driven mainly by strong performance from domestic vendors.
- ASML Revenue GrowthUSD-denominated compound annual growth rate of about 34% from 2025 to 2028System sales are expected to be about $66bn in 2028, with EUV revenue growing at a compound annual rate of about 44%.
- ASML EUV ShipmentsIncrease from 48 units in 2025 to 118 units in 20282028 is expected to include 8 High-NA systems.
- AMAT Target Price$675Previously $525, maintaining Outperform.
- LRCX Target Price$385Previously about $360 to $365, maintaining Outperform.
- KLAC Target Price$250Previously $225, maintaining Outperform.
Impact & implications
The upward revision to industry forecasts means equipment companies' order, revenue, and earnings growth may extend beyond 2027, potentially easing market concerns that the cycle is peaking prematurely. The upward revisions to DRAM and NAND spending are especially favorable for etch, deposition, and thermal processing equipment companies with high memory exposure; advanced logic, GAA, and advanced packaging support names such as AMAT, KLAC, ASML, and NAURA. China's capacity expansion and domestic substitution will simultaneously create share-gain opportunities for domestic equipment vendors and bring incremental demand to overseas suppliers that still have technological advantages, though revenue mix may continue to normalize from previously unusually high levels. Although current valuations are elevated, the recent pullback and stronger earnings upgrades still improve risk-reward appeal.
Risks
- Valuations in the semiconductor equipment sector remain elevated, and the forward P/E ratios of AMAT, LRCX, and KLAC and their premiums relative to SOX and SPX may constrain near-term returns.
- If global WFE, DRAM, NAND, or advanced logic capacity expansion falls short of forecasts, it would weaken the basis for earnings upgrades and target prices.
- Export controls, DUV shortages, and geopolitical changes may limit China's demand for imported equipment and revenue for overseas suppliers.
- Faster-than-expected domestic substitution in China may cause international equipment vendors to continue losing share.
- Order growth, customer qualification, and revenue recognition for Chinese domestic equipment companies may lag the capacity expansion plans reflected in channel checks.
- Equipment delivery cycles are relatively long, and delays in cleanroom construction or customer production ramps may cause mismatches between orders and revenue recognition.
- ASML's China revenue share normalizing from high levels in 2024 to 2025 may create near-term revenue mix pressure.
- There are differences in definitions across different parts of the report for 2026 WFE and some component forecasts, so the original tables and model versions should be checked when using the data.
What to watch
- AMAT's upcoming results, orders, and guidance for 2027 demand.
- Whether major equipment vendors further raise their 2026 China revenue expectations.
- Order growth guidance for Chinese equipment vendors for the remaining months of 2026 and revenue realization in 2027.
- Progress in China's DRAM, NAND, advanced logic, and mature logic capacity expansion.
- Kirin 2026 chips, YMTC IPO filings, and Huawei superPoD deliveries in the second half of 2026.
- Recovery of China's DUV imports in the second half of 2026.
- EUV shipments, High-NA system deliveries, and ASML DUV capacity ramping toward about 200 units by 2028.
- The lift to equipment intensity from DRAM 1c node penetration, GAA, HBM, NAND upgrades, and advanced packaging.
- Whether high valuations of semiconductor equipment stocks can continue to be absorbed by earnings upgrades in 2027 to 2028.