Goldman Sachs substantially raises its WFE outlook, but whether strong orders translate into profits will depend on capacity, delivery, and pricing power

Overview

The report focuses on Japan's semiconductor capital equipment industry. Goldman Sachs substantially raises its CY26-CY28 wafer fabrication equipment market forecasts due to expanding order backlogs at global equipment vendors, increased capital spending appetite among semiconductor manufacturers, and the broadening of AI demand into more chip categories. The report also emphasizes that the key issue in the next phase is no longer merely the strength of orders, but whether equipment makers can deliver on time with sufficient capacity and offset component costs through price increases, thereby converting revenue growth into margin improvement.

Core views

Goldman Sachs substantially raises its global WFE (front-end wafer fabrication equipment) market forecasts: US$150.3bn in CY26, up 36% year over year; US$217.5bn in CY27, up 45%; and US$280.9bn in CY28, up 29%. The upgrades are based on semiconductor manufacturers' increased willingness to invest, which has driven a significant expansion in equipment vendors' order backlogs. The expansion in AI demand is also no longer limited to a small number of core products but is driving broader semiconductor demand, with particularly notable forecast upgrades in DRAM and logic/foundry. Chinese capital expenditure also remains robust. Goldman Sachs' China team expects the Chinese WFE market to sustain double-digit percentage growth throughout CY26-CY28. Although China revenue as a share of sales for some Japanese equipment makers is expected to decline gradually, absolute sales can continue to grow. As orders strengthen broadly, the report believes the factors determining individual companies' earnings trajectories are shifting toward three supply and profit realization capabilities: first, whether production capacity can be flexibly expanded; second, whether manufacturing and component procurement lead times will constrain shipments; and third, whether companies possess pricing and cost pass-through capabilities when component costs rise. Companies with similar order trends may deliver markedly different results because of differences in these three capabilities. Ulvac and Tokyo Seimitsu are of particular concern: despite strong orders at both companies, production bottlenecks lead Goldman Sachs to believe that the likelihood of further earnings estimate upgrades before FY6/28 and FY3/28, respectively, is low. The individual stock rating framework remains unchanged. Goldman Sachs first assesses whether a company can achieve sales growth above the industry average through technological changes, proprietary technology, or market share gains, and then determines whether strong revenue growth can translate into steady margin improvement. Based on these two criteria, the report reiterates its most positive view on four companies: Lasertec benefits from an expanding addressable market for ACTIS, Disco benefits from an expanding addressable market in advanced packaging, Tokyo Electron is expected to enhance profitability through price increases, and Ebara benefits from CMP market growth and potential market share gains. Investment ratings on all Japanese SPE companies remain unchanged. For Disco, Goldman Sachs raises its FY3/28 and FY3/29 operating profit forecasts by 7% and 19%, respectively, reflecting continued capacity expansion by OSAT companies, primarily in China, back-end capacity investment driven by WFE growth, and increased consumables demand. The FY3/27 forecast is lowered slightly due to revised selling and administrative expense assumptions. The company's limited disclosure regarding recent inquiries and orders had weighed on market expectations for longer-term earnings expansion, but contract liabilities reached ¥73bn at the end of 1Q3/27, up 46% quarter over quarter, which the report views as evidence of growth in inquiries and orders that will convert into future revenue. The 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 and 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 exceed that of the WFE market. It also believes that improved profitability and an order recovery in the Energy business, combined with strong profit expansion in the Precision Machinery and Electronics business, could drive overall earnings growth above market consensus. The target price remains ¥7,900, although the cost of equity used for the FY12/27 valuation is adjusted from 4.2% to 4.5% based on peers' current share prices. The Buy rating is maintained. 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 near-term capacity flexibility to accommodate strong orders, including converting existing space at its Tonami plant into cleanrooms and adding shifts, so strong earnings growth is expected to continue through FY3/28. However, Goldman Sachs considers the valuation unattractive even compared with other front-end equipment peers and therefore maintains its Neutral rating, while raising the target price from ¥10,000 to ¥10,500. For Ulvac, despite incorporating the new WFE forecasts, Goldman Sachs only fine-tunes its FY6/27-FY6/29 operating profit forecasts because longer raw-material procurement lead times are creating capacity constraints, while the effects of price increases and higher R&D expenses must also be considered. The report assesses Ulvac's earnings upside in this upcycle as weaker than that of competitors and therefore widens its valuation 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, based on growth in SoC and memory tester sales alongside expansion in the WFE market, Goldman Sachs raises its FY3/27-FY3/29 operating profit forecasts by 0%, 7%, and 15%, respectively. The company has accelerated its capacity expansion, and strong earnings growth is expected to continue through FY3/28. However, because test time per device does not appear to have changed materially, the report believes Advantest's earnings growth after FY3/28 is unlikely to stand out significantly among covered companies. The target price is raised from ¥40,000 to ¥43,000, with the Neutral rating maintained. For Lasertec, Goldman Sachs raises its sales forecasts for MATRICS and ACTIS, primarily for DRAM and logic applications, and increases its FY6/27-FY6/29 operating profit forecasts by 1%, 2%, and 9%, respectively. ACTIS's addressable market has expanded in practice, with growing applications for the A300 in addition to the ACTIS A200HiT. The company's full-year order guidance is ¥300bn-¥400bn, while Goldman Sachs estimates that orders in 4Q6/26 alone approached ¥100bn. It therefore believes FY6/27 orders are highly likely to exceed the upper end of guidance and forecasts ¥425.6bn. The target price remains ¥70,000, with the Buy rating reiterated and the stock retained on the Asia-Pacific Conviction List. For Tokyo Seimitsu, continued investment by OSAT companies, primarily in China, and potential back-end capacity expansion resulting from WFE growth lead to increases of 3% and 6% in the FY3/28 and FY3/29 operating profit forecasts, respectively. However, even with strong probe station orders and a high backlog, the scope for capacity increases remains very limited until the new Hanno plant, expected to begin operations around the end of 2027, is completed. Goldman Sachs therefore continues to believe that earnings expansion will be constrained through FY3/28. The target price is raised from ¥16,000 to ¥16,500, with the Sell rating maintained. For SCREEN HD, FY3/27-FY3/29 operating profit forecasts are raised by 1%, 8%, and 22%, respectively. The report believes the company has no obvious capacity constraints and can continue expanding sales in line with actual demand through FY3/28. However, its profit structure particularly benefits from high-margin business with emerging Chinese customers. As the share of China revenue is expected to decline gradually, further margin expansion will remain constrained. The target price is raised from ¥12,500 to ¥12,800, with the Sell rating maintained. For HOYA, the report believes the company's existing capacity flexibility is sufficient to accommodate 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 recurring operations forecasts by 1%, 3%, and 5%, respectively. Profitability in both core businesses, Information Technology and Life Care, continues to expand steadily, and Goldman Sachs expects operating profit and EPS to exceed market consensus. The target price is raised from ¥35,000 to ¥36,000, with the Buy rating maintained. For Tokyo Electron, in addition to the new WFE outlook, Goldman Sachs incorporates the possibility that margin improvements from management's proactive price increases may materialize earlier than expected, raising its FY3/27-FY3/29 operating profit forecasts by 4%, 9%, and 26%, respectively. The company's delivery lead times have not lengthened as significantly as those of peers while it meets strong demand, which the report views as a sign that price increases are progressing smoothly. Management originally planned to achieve a gross margin of at least 50% by the end of FY3/28, but Goldman Sachs believes this target could be reached as early as 4Q3/27. The target price is raised from ¥86,000 to ¥90,000, with the Buy rating maintained.

Analysis framework

The report first updates its global and Chinese WFE market forecasts based on equipment vendors' order backlogs, semiconductor manufacturers' capital expenditure, and the broadening of AI demand, and then maps industry demand to each company's sales and operating profit forecasts. At the individual stock level, it sequentially evaluates production capacity, component and manufacturing lead times, and pricing capability. It also examines whether technological changes, proprietary technology, and market share gains can generate above-industry revenue growth, and whether revenue growth can translate into margin improvement. Finally, it adjusts target prices based on revised earnings forecasts, peer valuations, and company-specific valuation premiums or discounts, while maintaining the existing rating framework.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Analysis of WFE demand, order backlogs, and equipment vendors' supply capabilities

  The report first forecasts equipment demand generated by semiconductor manufacturers' capital expenditure and then assesses whether equipment vendors' capacity and lead times can meet that demand, thereby determining when orders can be converted into revenue and profit.

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

  Transmission of AI and chip demand to wafer manufacturing and equipment investment

  The report links the broadening of AI demand into chip categories such as DRAM, logic, and foundry to manufacturers' capital expenditure, WFE market growth, and the orders and performance of Japanese equipment companies.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Margin changes driven by sales growth and price increases

  The report examines not only equipment volume and revenue growth but also separately analyzes whether price increases can offset component costs and how pricing contributes to gross margin and operating profit.

• Valuation MethodEV/EBITDA valuation

  Global SPE industry-average EV/EBITDA multiple and company-specific relative premiums or discounts

  The report uses the global SPE industry's approximately 18x EV/EBITDA and specified-year earnings forecasts as a basis, applying relative premiums or discounts according to each company's growth, profitability, or constraints. For example, Ulvac's industry discount is widened from 55% to 60%.

• Valuation MethodPB valuation

  Valuation based on the relationship between P/B and expected ROE

  Ebara's target price is determined based on the relationship between P/B and expected FY12/27 ROE, with the cost of equity adjusted from 4.2% to 4.5%.

Asset mapping & comparison

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

• Disco（6146.T）

  Advanced packaging, capacity expansion by OSAT companies primarily in China, back-end equipment investment, and consumables growth drive earnings upgrades.

  Strengths

  Expanding addressable market in advanced packaging; contract liabilities of ¥73bn at the end of 1Q3/27, up 46% quarter over quarter.

  Weaknesses

  Insufficient recent disclosure regarding inquiries and orders, and higher FY3/27 selling and administrative expense assumptions.

  Comparison

  Identified by Goldman Sachs as one of four key Buy-rated stocks within its Japanese SPE coverage.

  Risks

  A slowdown in AI-related demand or market share losses, weaker Chinese demand or tighter export controls, rapid yen appreciation against the US dollar, and a downturn in semiconductor capital expenditure.

• Ebara（6361.T）

  CMP equipment growth, potential market share gains, and a recovery in Energy business profitability support earnings growth above market consensus.

  Strengths

  CMP equipment growth is expected to exceed that of the WFE market, with strong profit expansion in the Precision Machinery and Electronics business.

  Weaknesses

  Pressure on the FY12/26 product mix in the Precision Machinery and Electronics business, while the Energy business previously experienced a temporary decline in profitability.

  Comparison

  Identified by Goldman Sachs as one of four key Buy-rated stocks, with the target price maintained at ¥7,900.

  Risks

  Increasing competitiveness of Chinese CMP equipment vendors, slower adoption of new semiconductor device technologies, and declines in crude oil or LNG prices and refining or petrochemical margins.

• Kokusai Electric（6525.T）

  The new WFE outlook and capacity measures such as convertible cleanroom space and additional shifts support earnings growth through FY3/28.

  Strengths

  The Tonami plant has space that can be converted into cleanrooms, providing ample near-term capacity flexibility.

  Weaknesses

  The valuation remains unattractive relative to other front-end SPE peers.

  Comparison

  Earnings forecasts are raised significantly, but the Neutral rating is maintained.

  Risks

  Changes in major customers' investment, shifts in the competitive landscape caused by changes in competitors' strategies, and further adjustments to export controls.

• Ulvac（6728.T）

  Benefits from improved WFE demand are constrained by material procurement lead times and production capacity.

  Strengths

  The order environment is strong, with upside potential if capacity flexibility improves further.

  Weaknesses

  Limited capacity, longer material procurement cycles, and higher R&D expenses result in weaker earnings upside than competitors.

  Comparison

  The valuation discount to the industry-average EV/EBITDA is widened from 55% to 60%, the target price is lowered to ¥7,200, and the Sell rating is maintained.

  Risks

  Production bottlenecks and component procurement lead times may continue to constrain order conversion and margin improvement.

• Advantest（6857.T）

  Sales of SoC and memory testers increase alongside expansion in the WFE market, while early capacity expansion supports earnings growth through FY3/28.

  Strengths

  Capacity expansion has been accelerated.

  Weaknesses

  Test time per device has not changed materially, and earnings growth after FY3/28 may struggle to significantly outperform covered peers.

  Comparison

  Earnings forecasts and the target price are raised, but the Neutral rating is maintained.

• Lasertec（6920.T）

  Expanding applications for ACTIS and MATRICS in DRAM and logic support order and earnings growth.

  Strengths

  ACTIS's addressable market is expanding, with increased applications for the A300 and ACTIS A200HiT; the FY6/27 order forecast is ¥425.6bn.

  Weaknesses

  The share price was recently weak following the earnings release, but the report does not change its fundamental assessment on that basis.

  Comparison

  Rated Buy and included on the Asia-Pacific Conviction List, with the 12-month target price maintained at ¥70,000.

• Tokyo Seimitsu（7729.T）

  Chinese OSAT investment and back-end capacity expansion demand generate orders, but capacity constraints suppress earnings realization.

  Strengths

  Probe station orders are strong, and the order backlog remains high.

  Weaknesses

  There is limited scope to increase capacity before the new Hanno plant is expected to begin operations around the end of 2027.

  Comparison

  Earnings forecasts and the target price are raised slightly, but the Sell rating is maintained.

  Risks

  Capacity bottlenecks before the new plant begins operations may constrain earnings expansion through FY3/28.

• SCREEN HD（7735.T）

  The company can expand sales in line with actual demand, but changes in its China sales mix limit margin upside.

  Strengths

  No obvious production capacity constraints are evident, and FY3/27-FY3/29 operating profit forecasts are raised by 1%, 8%, and 22%, respectively.

  Weaknesses

  Business with emerging Chinese customers carries higher margins, and a future decline in China's share of sales may weaken margin expansion.

  Comparison

  Earnings forecasts and the target price are raised, but the Sell rating is maintained.

  Risks

  Changes in the China sales mix may prevent revenue growth from fully translating into margin improvement.

• HOYA（7741.T）

  Growth in demand for HDD and EUV mask blanks, together with expansion in the Information Technology and Life Care businesses, supports earnings above consensus.

  Strengths

  The company already has sufficient capacity flexibility ahead of large-scale capital expenditure in FY3/29, while profitability in both core businesses is expanding steadily.

  Comparison

  The target price is raised from ¥35,000 to ¥36,000, with the Buy rating maintained.

• Tokyo Electron（8035.T）

  Strong demand and proactive price increases jointly drive upward revisions to revenue and margins.

  Strengths

  Delivery lead times have not lengthened as significantly as those of peers while meeting demand, price increases are being implemented smoothly, and the gross margin target may be achieved ahead of schedule.

  Comparison

  Identified as one of four key Buy-rated stocks, with the target price raised from ¥86,000 to ¥90,000.

  Risks

  If the effects of price increases or margin improvement materialize later than expected in the report, the projected earnings upgrades may not be realized.

Key data

• Global WFE market forecast—CY26US$150.3bnUp 36% year over year, with the forecast substantially raised
• Global WFE market forecast—CY27US$217.5bnUp 45% year over year, with growth expected to accelerate further
• Global WFE market forecast—CY28US$280.9bnUp 29% year over year
• China WFE growth outlookSustained double-digit percentage growth throughout CY26-CY28Capital expenditure remains robust
• Disco contract liabilities¥73bnAt the end of 1Q3/27, up 46% quarter over quarter and viewed as evidence of growth in inquiries and orders
• Lasertec FY6/27 order forecast¥425.6bnAbove the company's full-year order guidance range of ¥300bn-¥400bn
• Tokyo Seimitsu's new Hanno plantExpected to begin operations around the end of 2027Capacity upside is expected to remain limited before operations begin
• Tokyo Electron gross margin targetAt least 50%Management's target is for the end of FY3/28, but Goldman Sachs believes it may be achieved as early as 4Q3/27
• Ulvac valuation discount60%The discount to the industry-average EV/EBITDA is widened from 55%
• Report pricing reference dateAugust 21, 2026 closeUsed to calculate the percentage change between target prices and current prices

Impact & implications

The report believes the upward trend in total WFE industry demand has strengthened, but industry momentum will not benefit all equipment vendors proportionally. Companies with rapidly scalable capacity, shorter and more stable delivery lead times, and stronger pricing power are more likely to convert orders into above-industry revenue and margin growth. Companies constrained by capacity or procurement bottlenecks, or whose business mix is unfavorable for margin expansion, may have limited scope for earnings upgrades even when orders are strong. Accordingly, the industry assessment is shifting from a sole focus on demand and orders toward the quality of order conversion and incremental profit.

Risks

• If equipment vendors cannot expand capacity in a timely manner, strong orders may not convert into revenue and profit as expected.
• Longer component procurement lead times and rising component costs may slow deliveries and compress margins.
• A slowdown in Chinese demand or tighter export controls may affect equipment demand and company sales.
• If semiconductor capital expenditure enters a downturn, WFE demand will weaken.
• Rapid appreciation of the yen against the US dollar may adversely affect some Japanese equipment vendors.
• Increasing competitiveness among domestic Chinese CMP equipment vendors may affect Ebara's growth or market share.
• Changes in major customers' investment plans and competitors' strategies may alter Kokusai Electric's earnings trajectory.

What to watch

• Monitor whether the global WFE market can achieve the CY26-CY28 forecasts of US$150.3bn, US$217.5bn, and US$280.9bn.
• Assess whether Chinese WFE investment continues to post double-digit percentage growth throughout CY26-CY28 and whether Japanese equipment vendors can continue growing absolute sales as China's share of their sales declines.
• Compare each equipment vendor's ability to expand capacity and shorten manufacturing and component procurement lead times.
• Monitor the implementation of price increases amid rising component costs and their translation into gross margin and operating margin.
• Track whether Lasertec's FY6/27 orders can exceed the ¥400bn upper end of guidance and approach Goldman Sachs' ¥425.6bn forecast.
• Monitor whether Tokyo Seimitsu's new Hanno plant begins operations around the end of 2027 as expected.
• Assess whether Tokyo Electron's gross margin target of at least 50% can be achieved as early as 4Q3/27.
• Continue comparing whether each company's sales growth can exceed the industry average and whether revenue growth can drive margin improvement.