Goldman Sachs raises earnings forecasts and target prices for Japan's semiconductor capital equipment sector, but emphasizes limited room for further valuation expansion and recommends focusing allocations on stocks with upside earnings surprise potential.
AI summary card
Goldman Sachs raises earnings forecasts and target prices for Japan's semiconductor capital equipment sector, but emphasizes limited room for further valuation expansion and recommends focusing allocations on stocks with upside earnings surprise potential.
The report believes upward revisions to AI semiconductor and memory capex will continue to lift FY27-FY28 earnings expectations, maintains Buy ratings on Lasertec, Ebara, Disco, and Tokyo Electron, and reinstates coverage on Kokusai Electric with a Neutral rating.
- The 10 covered Japanese SPE companies have risen an average of 65% year to date, significantly outperforming TOPIX's 17% gain over the same period; the report believes expectations for CY26-CY27 equipment demand growth are already largely reflected in share prices and valuations.
- Goldman Sachs expects the CY27 WFE market to grow 32% year over year, faster than CY26, so FY27-FY28 earnings expectations for the sector may still continue to move higher.
- The report raises the average 12-month target price for the 10 covered SPE companies by 16%, mainly reflecting upward revisions to capex forecasts for major memory makers such as Samsung and Micron, as well as a roll-forward of the valuation base year to FY27E or FY28E.
- The key to stock selection is not further valuation expansion, but whether companies can achieve above-industry sales growth through technology shifts, proprietary technology, or share gains, and convert revenue growth into margin improvement.
- Coverage on Kokusai Electric is reinstated with a Neutral rating and a target price of ¥9,500; although the probability of an upward revision to FY3/27 guidance is high, NAND capex recovery remains insufficient and the stock price already reflects most of the upside expectations.
Report interpretation
Overview
This is a Goldman Sachs 2H 2026 investment strategy report on semiconductor capital equipment companies within Japan's technology sector. The core judgment is that AI semiconductor demand is boosting major chipmakers' willingness to spend on capex, leading to a significant improvement in equipment demand. Although valuations and share prices of related stocks have already risen sharply over the past six months, the CY27 WFE market is still expected to grow faster, thereby continuing to drive upward revisions to FY27-FY28 earnings expectations. The report raises earnings forecasts and 12-month target prices for 10 covered companies, with an average target price increase of 16%, and maintains Buy ratings on Lasertec, Ebara, Disco, and Tokyo Electron while reinstating coverage on Kokusai Electric with a Neutral rating.
Core views
The report's core view is that opportunities remain at the sector level, but they will come mainly from earnings upgrades rather than continued multiple expansion. Goldman Sachs believes SPE company valuations are already clearly above historical ranges, making it difficult to rely on further valuation expansion for returns going forward; therefore, stock selection should focus on two capabilities: first, whether a company can achieve above-industry-average sales growth through technology changes, proprietary technology, or market share gains; and second, whether strong revenue growth can be converted into meaningful margin improvement. Based on this framework, the report is more positive on Lasertec, Ebara, Disco, and Tokyo Electron. For Kokusai Electric, it acknowledges a high probability of near-term guidance upgrades, but believes the current share price already largely reflects the upside in FY3/27 earnings, leaving risk-reward broadly balanced.
Analysis framework
The report uses a combination of top-down and bottom-up analysis. At the macro and industry level, it analyzes the impact of AI semiconductors, DRAM, HBM, NAND, and changes in capex by major memory makers on WFE demand. At the company level, it revises sales, operating profit, and net profit forecasts for each of the 10 covered SPE companies and compares them with Bloomberg consensus. At the valuation level, it uses methods such as EV/EBITDA, P/E, P/B, cost of equity, and relative premium or discount to determine 12-month target prices. The report also combines margins, revenue growth, valuation multiples, and gaps versus market consensus to screen for stocks that may deliver upside earnings surprises.
Methodology notes
Derive target prices using EV/EBITDA multiples applicable to the industry or company.
Kokusai Electric's 12-month target price of ¥9,500 is derived from 18x EV/EBITDA, a multiple corresponding to the global SPE industry average and based on Goldman Sachs' FY3/28 earnings forecast; this target price implies FY3/28E P/E of 30x and P/B of 7.1x.
Identify companies where both sales growth and margin improvement may exceed market consensus.
The report emphasizes that, given limited room for further valuation multiple expansion, further share price gains depend more on earnings outperforming market expectations; screening criteria include above-industry sales growth driven by technology shifts, proprietary technology, or share gains, and whether revenue growth can drive meaningful improvement in operating margins.
Buy, Neutral, and Sell ratings are assigned relative to other companies within the coverage universe.
The report discloses that ratings for Advantest, DISCO, Ebara, JEOL, Lasertec, SCREEN Holdings, Tokyo Electron, Tokyo Seimitsu, and Ulvac are all determined relative to companies within the same coverage universe.
Use growth, financial returns, valuation multiples, and composite indicators to compare stock characteristics.
GS Factor Profile calculates percentiles using metrics such as sales growth, EBITDA growth, EPS growth, ROE, ROCE, CROCI, and P/E, P/B, EV/EBITDA, among others, to provide an investment profile of stocks relative to the market and industry peers.
Assess the likelihood of a company becoming an acquisition target on a scale of 1 to 3.
The appendix explains that Goldman Sachs uses an M&A framework across its global coverage to assess the probability of a potential acquisition; when the rating is 1 or 2, an M&A component may be included in the target price, while a rating of 3 is generally treated as not material.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Japan semiconductor capital equipment sectorMain industry allocation theme
- Strengths
- AI semiconductor demand is driving stronger capex willingness among major semiconductor manufacturers, and the CY27 WFE market is still expected to grow rapidly.
- Weaknesses
- Sector share prices and valuations have already risen markedly, leaving limited room for further multiple expansion.
- Comparison
- The 10 covered SPE companies have risen an average of 65% year to date, significantly outperforming TOPIX's 17%.
- Risks
- If WFE growth or upward revisions to memory capex fall short of expectations, current valuations may face pullback pressure.
- Lasertec 6920.TKey Buy-rated name
- Strengths
- Driven by stronger capex willingness from key customers such as TSMC, Intel, and Samsung, as well as full contribution from the new A200HiT product starting in FY6/27, order growth is likely to exceed market consensus.
- Weaknesses
- Valuation has already risen with the industry upcycle, so continued validation from orders and earnings will be needed.
- Comparison
- The target price of ¥67,000 implies +37% upside versus the current price of ¥48,910, the highest upside in the table.
- Risks
- If the capex pace of key customers, ramp-up progress of new products, or order recognition falls below expectations, the upside earnings surprise thesis will weaken.
- Ebara 6361.TKey Buy-rated name
- Strengths
- Visibility is high for an upward revision to FY12/26 guidance, mainly from the precision machinery business, and the next earnings confirmation could be a share price catalyst.
- Weaknesses
- The magnitude of earnings forecast upgrades is relatively moderate, and it remains to be seen whether revenue growth can continue to flow through to profits.
- Comparison
- The target price is raised from ¥7,100 to ¥7,800, implying +27% upside versus the current price of ¥6,134.
- Risks
- If order growth or margin improvement in the precision machinery business falls short of expectations, the guidance upgrade catalyst may weaken.
- Disco 6146.TKey Buy-rated name
- Strengths
- Technology shifts in advanced packaging are improving shipment momentum, including HBM, CoWoS, EMIB-T, hybrid bonding, and CPO.
- Weaknesses
- The target price increase mainly comes from the roll-forward of the valuation base year, while near-term earnings forecast revisions are limited.
- Comparison
- The target price is raised from ¥87,000 to ¥95,000, implying +20% upside versus the current price of ¥79,080.
- Risks
- If advanced packaging demand is below expectations, or shipment growth from technology upgrades is slower than expected, upside potential may be affected.
- Tokyo Electron 8035.TKey Buy-rated name
- Strengths
- Expectations for equipment price increases and margin improvement are strengthening, and sales growth is likely to exceed WFE market growth.
- Weaknesses
- The market already has high expectations for continued price increases and margin improvement.
- Comparison
- The target price is sharply raised from ¥62,000 to ¥83,000, implying +12% upside versus the current price of ¥74,270.
- Risks
- If pricing execution, demand growth, or margin improvement falls short of the market's high expectations, the valuation premium may come under pressure.
- Kokusai Electric 6525.TCoverage reinstated with Neutral
- Strengths
- The probability of an upward revision to FY3/27 company guidance is high, and Goldman Sachs' operating profit forecast of ¥70.1bn is significantly above company guidance of ¥54.5bn.
- Weaknesses
- The company has high exposure to NAND sales, while major memory makers are still prioritizing DRAM and HBM investment; the medium-term target of 30% adjusted OPM is considered challenging.
- Comparison
- The target price of ¥9,500 is below the current price of ¥9,980, implying -5% upside/downside; valuation is close to Tokyo Electron's but margins are slightly lower.
- Risks
- Slower-than-expected recovery in NAND capex, lower-margin equipment mix in DRAM and logic/foundry adoption, and limited upside in China equipment demand could all constrain earnings and valuation.
- Advantest 6857.TNeutral rating
- Strengths
- Demand for AI semiconductor testing is strong, and early capacity expansion is lifting earnings expectations.
- Weaknesses
- The report believes there is a lack of catalysts for a further significant increase in expectations for GPU/ASIC test time, and the CPU market scale is unlikely to reach the level of GPU/ASIC.
- Comparison
- The target price is raised from ¥30,000 to ¥34,000, implying +7% upside versus the current price of ¥31,890.
- Risks
- If the market's high expectations for testing demand cannot be revised further upward, share price elasticity may remain limited.
- Tokyo Seimitsu 7729.TSell rating
- Strengths
- The target price is raised from ¥14,000 to ¥15,000 based on the annual report and updated market statistics.
- Weaknesses
- HBM probers have high dependence on specific customers, so near-term order momentum may be weak; logic probers face intensifying competition from OSATs.
- Comparison
- The target price of ¥15,000 implies -21% downside versus the current price of ¥19,070.
- Risks
- 1Q orders and earnings may come in below market expectations.
- SCREEN Holdings 7735.TSell rating
- Strengths
- Upward revisions to capex forecasts by major memory makers support a modest upward revision to earnings forecasts.
- Weaknesses
- A decline in the share of sales to emerging customers in China and faster fixed-cost investment for future growth limit the margin improvement backdrop.
- Comparison
- The target price is raised from ¥9,500 to ¥12,500, but still implies -25% downside versus the current price of ¥16,720.
- Risks
- Even if there is upside to FY3/27 guidance, it may still be difficult to generate earnings above market expectations.
Key data
- Covered Company Share Price PerformanceThe 10 covered SPE companies have risen an average of 65% year to date; TOPIX is up 17% over the same periodThe report believes share prices and valuations already reflect expectations for CY26-CY27 equipment demand growth to a considerable extent.
- WFE Market OutlookThe CY27 WFE market is expected to grow 32% year over yearGoldman Sachs believes CY27 growth will be faster than CY26 and will continue to lift sector earnings expectations for FY27-FY28.
- Target Price RevisionThe average 12-month target price for the 10 covered SPE companies is raised by 16%Reasons for the increase include upward revisions to capex forecasts for major memory makers, released trade statistics data, and the roll-forward of the valuation base year.
- Key Buy-Rated NamesLasertec 6920.T: target price ¥67,000, upside +37%; Ebara 6361.T: target price ¥7,800, upside +27%; Disco 6146.T: target price ¥95,000, upside +20%; Tokyo Electron 8035.T: target price ¥83,000, upside +12%These companies are considered to have a higher probability of delivering earnings above market consensus.
- Kokusai Electric Rating ReinstatementNeutral; 12-month target price ¥9,500; current price ¥9,980; upside/downside -5%The report believes the probability of an upward revision to FY3/27 guidance is high, but the stock price has already risen substantially and risk-reward is broadly balanced.
- Kokusai Electric FY3/27 Operating Profit ForecastGoldman Sachs forecast: ¥70.1bn; company guidance: ¥54.5bnThe report believes there is a high probability that full-year guidance will be raised at the time of 1Q earnings, mainly driven by DRAM-related demand.
- Kokusai Electric Valuation Multiple18x EV/EBITDA; implied FY3/28E P/E 30x, P/B 7.1xThe report believes Kokusai Electric's margins are slightly lower than Tokyo Electron's while its valuation is similar, so it does not appear undervalued.
- Sell-Rated NamesTokyo Seimitsu 7729.T: target price ¥15,000, downside -21%; SCREEN HD 7735.T: target price ¥12,500, downside -25%The report believes the relevant companies face pressure in orders, margins, or the difficulty of delivering upside earnings surprises.
Impact & implications
For investors, the main implication of the report is that Japan's semiconductor equipment sector still has an earnings-upgrade story, but the trading focus should shift from simply chasing industry momentum to validating the quality of company-specific earnings. Because sector valuations have already risen significantly, subsequent share price elasticity is more likely to come from orders, revenue, and margins beating market consensus rather than continued valuation multiple expansion. At the portfolio level, Goldman Sachs prefers Lasertec, Ebara, Disco, and Tokyo Electron; for Kokusai Electric, it recommends waiting for a full recovery in NAND capex and clearer margin improvement before increasing risk appetite.
Risks
- Sector valuations have already expanded significantly; if CY26-CY27 equipment demand growth fails to materialize, share prices may become more sensitive to downward earnings revisions.
- Major memory makers are still prioritizing DRAM and HBM investment, while NAND capex recovery remains relatively weak, which may weigh on companies with higher NAND exposure.
- The market already has high expectations for equipment price increases, margin improvement, and guidance upgrades at some companies; if 1Q or subsequent results lack incremental catalysts, share price upside may be limited.
- If demand related to advanced packaging, HBM, CoWoS, EMIB-T, hybrid bonding, and CPO falls below expectations, shipment momentum for related names such as Disco will be affected.
- Customer concentration, intensifying OSAT competition, rising fixed-cost investment, and a declining share of sales to emerging customers in China may suppress orders and margins at certain companies.
- Changes in foreign exchange, trade statistics, capex plans, and industry inventory cycles may require further revisions to earnings forecasts.
What to watch
- Whether capex forecasts from major memory makers such as Samsung and Micron continue to be revised upward.
- Whether the CY27 WFE market can achieve the 32% year-over-year growth forecast in the report.
- Whether Kokusai Electric raises its full-year FY3/27 guidance at the time of its 1Q earnings release, and whether the magnitude exceeds market expectations.
- Whether Ebara's precision machinery business confirms stronger visibility for an upward revision to FY12/26 guidance in the next earnings release.
- The pace of contribution from Lasertec's new A200HiT product starting in FY6/27, and changes in orders from customers such as TSMC, Intel, and Samsung.
- Whether Tokyo Electron can continue to deliver equipment price increases, sales growth above WFE market growth, and margin improvement.
- Whether NAND capex shifts from gradual improvement to a full recovery.