European semiconductor inventories remain benign, with restocking, price increases, and accelerating sales jointly supporting the upcycle

Overview

The report assesses whether the industry is experiencing overstocking by comparing inventory value and inventory days across various parts of the semiconductor supply chain in 2Q26 against their three-year seasonal averages, while also incorporating pricing and sales data. Its conclusion is that, despite very strong sales growth, overall inventories remain under control, with inventories in key areas such as distribution, memory, packaging and testing, and automotive/industrial semiconductors remaining low, suggesting that the industry upcycle can continue; wireless components are the main weak spot.

Core views

Overall inventory signals continue to support the semiconductor upcycle. Semiconductor inventory value increased 5.6% QoQ in 2Q26, but inventory days declined from 140 at the end of 1Q26 to 136, versus 131 at the end of 4Q25. On a seasonally adjusted basis, inventory days were 1.5% below the three-year seasonal average, compared with 5.5% below at the end of 1Q26. Excluding memory, inventory value increased 4.8% QoQ, while inventory days declined from 147 to 143; relative to the three-year seasonal average, however, they edged up from 4.5% above to 5.0% above. The report believes the increase in inventory value occurred primarily against a backdrop of strong revenue growth. Because inventory days declined and there is no evidence of excessive build, this is insufficient to invalidate the industry uptrend. The divergence between IDM and fabless companies requires consideration of structural effects. At the end of 2Q26, IDM inventory value increased only 0.4% QoQ, while inventory days stood at 143. The report cites 157 days in 1Q25 as the comparison benchmark, and inventory days were 4.1% below the three-year seasonal average. Fabless companies' inventory value increased 10.3% QoQ, with inventory days rising from 134 to 144 and the premium to the seasonal average widening from 2.8% to 9.4%. However, most of the increase came from Qualcomm, where higher work-in-progress inventory raised inventory days from 137 to 164, which the company attributed to the impact of memory supply constraints on customer demand. Excluding Qualcomm, fabless inventory value increased 8.1% QoQ and inventory days edged up only from 132 to 133. The report therefore does not view the apparent increase in fabless inventory as a broad-based deterioration. Midstream and channel inventories remain low. The memory companies included in the report exclude Samsung. Their inventory value increased 7.4% QoQ in 2Q26, but inventory days declined from 126 to 122, 14% below the three-year seasonal average; the report believes tight memory supply will keep inventories low. Packaging and testing inventory value increased 2.7% QoQ, while inventory days declined from 38 to 36, 22.7% below the seasonal average. Although inventory value at distributors Avnet, Arrow, WT Micro, and Macnica increased 12.9% QoQ, sales and cost of sales rose approximately 15% QoQ, driven by strong activity, and inventory days declined from 61 to 59, 20.5% below the three-year seasonal average. The report concludes that channel inventories remain very lean and that continued restocking should support semiconductor companies' sales. End-market-related inventories show both improvement and divergence. Server and PC component inventory value increased 2.4% QoQ, while inventory relative to the three-year seasonal average shifted from 2.9% below at the end of 1Q26 to 1.5% above at the end of 2Q26, indicating somewhat greater volatility. Wireless component inventory value increased 7.8% QoQ, while inventory days rose from 139 to 149 and the premium to the seasonal average widened from 2.4% to 5.5%. The report identifies this as the weakest area, potentially reflecting softer demand. In contrast, inventory value at automotive- and industrial-related semiconductor companies increased only 1.7% QoQ, while inventory days declined from 173 to 163 and shifted from 3.6% above the seasonal average to 3.4% below it. Some companies had previously maintained higher inventories for the upcycle, but companies such as Infineon are now targeting lower inventories and improved cash conversion. Conditions also differ between automotive suppliers and industrial companies. Automotive supplier inventory value increased 0.7% QoQ, while inventory days rose from 58 to 61 and shifted from 2.2% below the three-year seasonal average to 1.6% above it. The report believes this may represent restocking, as strength in the AI market has increased the risk of being unable to obtain chips. Industrial company inventory value increased 2.7% QoQ, but inventory days declined from 102 to 99, 3.1% below the three-year seasonal average. This discount widened further from 2.7% at the end of 1Q26, making industrial companies' inventory position relatively more favorable. The increase in inventories at AI-related OEMs and ODMs appears to reflect strategic stocking. The report states that server and networking equipment companies are building inventories in preparation for higher revenue in 2H26. In an environment of inflation in AI component prices, advance purchasing also helps lock in lower procurement prices and secure supply. AI server OEM inventory value increased 16% QoQ, while inventory days increased 16.7% QoQ and stood significantly above the three-year seasonal level. AI server ODM inventory days declined 11.5% QoQ but remained 9.3% above the three-year seasonal average. AI networking equipment ODM/OEM inventory value increased 18% QoQ, while inventory days rose 11.4% and stood 0.6% above the three-year seasonal average. The report interprets these changes primarily as proactive stocking ahead of revenue growth rather than inventory accumulation caused by collapsing end demand. Pricing trends further reinforce the cyclical assessment. Based on a three-month moving average, overall semiconductor prices rose 100.7% YoY in June 2026, up from 85% in May and 73.4% in April. Excluding memory, prices rose 22.8% YoY in June, also above 17.6% in May and 15.8% in April. WSTS data show that DRAM ASP increased 160% YoY in June, versus 150% and 144% in May and April, respectively; NAND ASP increased 182% YoY, versus 170% and 149% in May and April, respectively. DRAM spot prices continued to rise on strong AI demand, and the report expects the DRAM bit supply-demand deficit to persist or even widen in 2027. NAND spot prices, however, have declined modestly from their March-April peaks. Contract prices continue to lag increases in spot prices, but memory manufacturers are using long-term agreements to lock in more bit supply. According to InSpectrum, July contract prices for DDR5 16GB and DDR5 64GB RDIMM increased 17.65% and 18.8% MoM, respectively. Major European device manufacturers have substantial exposure to MCUs and power semiconductors. Based on a three-month moving average, MCU prices rose 6.4% YoY in June, slowing slightly from 6.8% in May and 8.1% in April. The report believes that new-generation MCUs incorporating more miniature components, together with greater use of high-performance MCUs in AI data centers, can support pricing. Power semiconductor prices rose 6.3% YoY in June but remained down 0.6% on a three-month moving-average basis, indicating that the prolonged downcycle is improving but has not yet fully reversed. Within the category, AI-related power demand drove an 11% YoY increase in power MOSFET prices, while power IGBT prices remained down 19% YoY. The report expects strength in MOSFET pricing to continue. Sales data indicate that demand and price growth are far exceeding normal seasonality. WSTS data show that total semiconductor sales increased 35.3% QoQ in 2Q26, well above the average seasonal increase of 5.6% over the past five years, while YoY growth accelerated to 124% from 78.8% in 1Q26. Excluding memory and discrete devices, sales increased 10.6% QoQ, also above the five-year average of 2.6%, while YoY growth accelerated from 28.5% in 1Q26 to 36.1%. Total semiconductor sales increased 10.5% QoQ and 134% YoY in June 2026, while shipment volumes increased 8.2% YoY over the same period, indicating that pricing was an important driver of revenue growth. Memory sales increased 64.2% QoQ in 2Q26, compared with a normal seasonal decline of 17% QoQ over the past five years, and increased 363% YoY. The report also states that memory sales increased 11% QoQ and 369% YoY in March 2026, driven primarily by a 225% YoY increase in prices, while unit volumes increased 44.4% YoY. Taking inventory, pricing, and sales indicators together, the report believes that key semiconductor metrics have not deteriorated. Persistent shortages and low channel inventories should support a continuation of the industry upcycle, and it expects semiconductor companies' October earnings and guidance to remain strong. The institution maintains its bullish view on most large semiconductor stocks, naming ASML and ASMI as its top picks while also favoring Infineon, VAT, and Besi. Among the covered companies listed, all of these companies are rated OW, while cs is rated N.

Analysis framework

The report first aggregates inventory value and inventory days for listed semiconductor companies, then compares inventory days with their respective three-year seasonal averages to distinguish normal seasonal changes from abnormal accumulation. It subsequently analyzes each layer of the supply chain, including IDM, fabless, memory, packaging and testing, distributors, and end-market OEMs/ODMs, while excluding distortions from individual companies such as Qualcomm. Finally, it uses WSTS sales and ASP data, three-month moving averages, and spot and contract prices to cross-check the inventory conclusions against demand, volume, and pricing trends, before mapping the findings to the industry cycle and views on covered stocks.

Methodology notes

• Cycle and Business Conditions Framework

  Comparison of Inventory Days with the Three-Year Seasonal Average

  The report compares inventory days in each segment with normal seasonal levels over the past three years to determine whether inventory increases reflect normal stocking amid revenue growth or abnormal accumulation caused by insufficient demand.

• Industry/Sector Analysis FrameworkUpstream, Midstream, and Downstream Supply Chain Transmission

  Inventory Tracking by Semiconductor Supply Chain Segment

  The report sequentially examines chip manufacturers, memory, packaging and testing, distribution channels, and automotive, industrial, wireless, and AI equipment companies, using upstream and downstream inventory changes to assess how restocking, shortages, and end demand are transmitted.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition of Sales, Shipment Volumes, and ASP

  The report compares sales revenue, unit volumes, and average selling prices to identify how much of semiconductor and memory revenue growth comes from volume and how much comes from price increases.

• Cycle and Business Conditions Framework

  Three-Month Moving Average and Five-Year Seasonality Comparison

  Prices are measured using a three-month moving average to smooth monthly volatility, while QoQ sales growth is compared with average seasonal performance over the past five years to determine whether current growth significantly exceeds normal seasonal changes.

Asset mapping & comparison

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

• ASML (ASML.AS)

  The report identifies it as a top pick among large European semiconductor companies, with an OW rating and AFL designation.

  Strengths

  Benefits from the industry upcycle, persistent shortages, and strong semiconductor demand described in the report.

  Comparison

  Named alongside ASMI as one of the report's two top picks.

• ASM International (ASMI.AS)

  The report identifies it as a top pick among large European semiconductor companies, with an OW rating.

  Strengths

  Benefits from benign inventories, accelerating sales, and the continuation of the industry upcycle.

  Comparison

  Named alongside ASML as one of the report's two top picks.

• Infineon Technologies (IFXGn.DE)

  The report is bullish on the company, rates it OW, and notes that it is targeting lower inventories and improved cash conversion.

  Strengths

  Automotive and industrial semiconductor inventories have improved to below seasonal levels; MCU and power MOSFET prices are supported by new architectures and AI demand.

  Weaknesses

  Power IGBT prices declined 19% YoY in June 2026, while power semiconductor prices remained down 0.6% on a three-month moving-average basis.

  Comparison

  It is one of the large European semiconductor companies favored by the report but is not one of its two top picks.

  Risks

  Renewed restocking by automotive suppliers and continued weakness in power IGBT pricing.

• VAT (VACN.S)

  The report is bullish on the company and rates it OW.

  Strengths

  Benefits from the continuing semiconductor upcycle and strong industry indicators identified in the report.

  Comparison

  It is one of the large semiconductor stocks favored by the report.

• BE Semiconductor (BESI.AS)

  The report is bullish on the company and rates it OW.

  Strengths

  Packaging and testing inventory stood at only 36 days, 22.7% below the three-year seasonal average, indicating tight inventories in the related supply chain.

  Comparison

  It is one of the large semiconductor stocks favored by the report.

• cs (STMPA.PA)

  The report lists the company with an N rating and notes that major European device companies have substantial exposure to MCUs and power semiconductors.

  Strengths

  MCU prices increased YoY, while AI demand drove price increases for power MOSFETs.

  Weaknesses

  Power IGBT prices declined 19% YoY in June 2026, while MCU price growth slowed from April-May levels.

  Comparison

  Among the six companies listed in the report, it is rated N, while the other five are all rated OW.

  Risks

  Weak wireless demand and continued pressure on power IGBT pricing.

Key data

• 2Q26 Overall Semiconductor Inventory Value+5.6% QoQInventory days declined from 140 at the end of 1Q26 to 136, 1.5% below the three-year seasonal average.
• 2Q26 Inventory Excluding Memory+4.8% QoQ; 143 daysInventory days declined from 147 to 143 but remained 5.0% above the three-year seasonal average.
• 2Q26 IDM Inventory+0.4% QoQ; 143 daysInventory days were 4.1% below the three-year seasonal average.
• 2Q26 Fabless Inventory+10.3% QoQ; 144 daysInventory days were 9.4% above the three-year seasonal average, mainly due to Qualcomm's inventory days rising from 137 to 164; excluding Qualcomm, the figure was 133 days.
• 2Q26 Memory Inventory122 daysDown from 126 days and 14% below the three-year seasonal average; the statistics exclude Samsung.
• 2Q26 Packaging and Testing Inventory36 daysDown from 38 days and 22.7% below the three-year seasonal average.
• 2Q26 Distributor Inventory59 daysDown from 61 days and 20.5% below the three-year seasonal average.
• 2Q26 Wireless Component Inventory149 daysUp from 139 days and 5.5% above the three-year seasonal average.
• 2Q26 Automotive and Industrial Semiconductor Inventory163 daysDown from 173 days and 3.4% below the three-year seasonal average.
• 2Q26 AI Server OEM Inventory+16% QoQInventory days increased 16.7% QoQ and stood significantly above the three-year seasonal level.
• 2Q26 AI Networking Equipment ODM/OEM Inventory+18% QoQInventory days increased 11.4% and stood 0.6% above the three-year seasonal average.
• Overall Semiconductor Prices in June 2026+100.7% YoYBased on a three-month moving average; prices increased 85% and 73.4% in May and April, respectively.
• DRAM and NAND ASP in June 2026DRAM +160% YoY; NAND +182% YoYDRAM increased 150% and 144% in May and April, respectively; NAND increased 170% and 149%, respectively.
• DDR5 Contract Prices in July 202616GB +17.65%; 64GB RDIMM +18.8%Monthly increases; the data source is InSpectrum, as cited in the report.
• 2Q26 Total Semiconductor Sales+35.3% QoQ; +124% YoYQoQ growth was far above the average seasonal increase of 5.6% over the past five years.
• 2Q26 Memory Sales+64.2% QoQ; +363% YoYNormal seasonal performance over the past five years was a 17% QoQ decline.

Impact & implications

The report believes the increase in inventory value has not translated into a broad deterioration in inventory days. Inventories in distribution, memory, and packaging and testing remain significantly below seasonal levels, so channel restocking and tight supply should continue to support sales. Meanwhile, pricing and revenue growth are far above normal seasonality, reinforcing the view that the industry is in an upcycle. Wireless demand and power IGBT pricing remain weak, but not enough to alter the institution's bullish stance on most large European semiconductor stocks.

Risks

• Wireless component inventory days rose from 139 to 149 and stood 5.5% above the three-year seasonal average, potentially reflecting weakening demand.
• Fabless inventory increased significantly on the surface, with Qualcomm reaching 164 days due to accumulated work-in-progress, reflecting the impact of memory supply constraints on customer demand.
• Power IGBT prices declined 19% YoY in June 2026, indicating that some power semiconductor categories remain weak.
• AI server OEM inventory stood significantly above the three-year seasonal level. The report interprets this as strategic stocking, but the inventory change remains a divergence within the supply chain that warrants monitoring.

What to watch

• Monitor whether semiconductor companies' October earnings reports and guidance can sustain the strong performance expected by the report.
• Monitor whether low distributor inventories continue to drive channel restocking and semiconductor company sales.
• Monitor whether wireless component inventories and potentially weakening demand deteriorate further.
• Monitor whether the DRAM supply-demand deficit persists or widens in 2027 and whether contract prices continue to catch up with increases in spot prices.
• Monitor whether strategic stocking by AI server and networking equipment companies in preparation for 2H26 revenue growth successfully converts into sales.
• Monitor whether power MOSFET price increases continue and when weakness in power IGBT pricing begins to improve.