Goldman Sachs raises Japan semiconductor front-end WFE outlook, expects growth momentum to accelerate into CY27

Overview

This is a Goldman Sachs research report on Japanese semiconductor capital equipment companies. Core conclusion is the WFE market remains in a strong upcycle. Report argues AI semis remain strong, advanced product supply/demand is tight, capex expansion is broadening, and investment intensity is spreading from few firms like TSMC to wider participants, hence raising CY26-CY28 WFE forecasts and adjusting earnings/target prices for six front-end SPE companies.

Core views

Key view 1: WFE upcycle continues, CY27 growth stronger. View 2: Memory and non-memory advanced process investments active, DRAM three major firms investment stable, NAND equipment demand likely expands to 2027 under tight supply/demand, Logic/Foundry mature nodes weak but advanced process investment willingness spreads. View 3: With valuation multiples at historical highs, stock selection should focus more on earnings upgrade space vs consensus. View 4: Report continues to recommend Lasertec, Ebara, Tokyo Electron, and Ulvac.

Analysis framework

Top-down WFE forecasting combined with bottom-up company earnings forecasting: First adjust WFE total and breakdown forecasts based on AI, HBM, DRAM, NAND, Logic/Foundry investment trends. Then map new WFE assumptions to revenue, operating profit, net profit, and EPS estimates for six Japanese front-end SPE companies. Validate individual stock risk/reward using target price methods.

Methodology notes

• Industry Cycle ForecastingWFE Market Forecast

  Split WFE demand by application

  Report splits WFE forecast by Memory, DRAM, NAND, Foundry, Logic & Other categories, comparing old/new forecasts and YoY growth to judge strength of semiconductor equipment cycle.

• Valuation MethodTarget Price Method

  P/B and ROE correlation, global SPE industry average multiple, relative premium/discount

  Ebara target price based on P/B and FY12/27E ROE estimate correlation; Kokusai, Ulvac, Lasertec, SCREEN HD and Tokyo Electron mainly based on 18x average global SPE industry multiple, applying relative premium or discount per company quality or risk.

• Factor AssessmentGS Factor Profile

  Growth, Financial Returns, Multiple and Integrated percentiles

  Goldman Sachs factor framework compares individual stocks against market and industry peers through growth, financial returns, valuation multiples and composite metrics to provide investment context rather than solely deciding ratings.

• M&A Probability AssessmentM&A Rank

  1 to 3 level M&A probability score

  GS uses M&A Rank to assess probability of company becoming acquisition target, where 1 represents high probability, 2 medium, 3 low; if 1 or 2, M&A component may be included in target price.

Asset mapping & comparison

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

• Lasertec 6920.T

  Buy rating, Conviction List, benefits from advanced logic/foundry and DRAM investment plus ACTIS A200HiT potential penetration

  Strengths

  New ACTIS A200HiT product features higher resolution mask inspection capabilities, significant profit upside possible if entering fabs; target price corresponds to +29% upside.

  Weaknesses

  Valuation relies on strong growth expectations and product penetration realization.

  Comparison

  Report lists it as one of the priority favored buy targets, with relative industry 50% premium multiple.

  Risks

  Share loss due to new entrants, insufficient ACTIS fab introduction progress, weakening investment willingness of advanced process clients, rapid appreciation of JPY against USD.

• Ebara 6361.T

  Buy rating, benefits from precision/electronics business especially CMP equipment profit expansion

  Strengths

  Company overall profit growth expected driven by semiconductor precision/electronics business; target price ¥7,000 corresponds to +33% upside, highest in table.

  Weaknesses

  Exposed to oil/gas refining/petrochemical cycles besides semiconductor equipment.

  Comparison

  Report favors its relative consensus earnings upgrade potential, target price based on P/B and FY12/27E ROE correlation.

  Risks

  Semiconductor capex enters downcycle, rising competitiveness of Chinese CMP system vendors, slower adoption of new technologies in semiconductor devices, crude/LNG price decline and refining/petrochemical margin compression.

• Tokyo Electron 8035.T

  Buy rating, benefits from income growth stronger than WFE and profitability improvement

  Strengths

  Report expects revenue growth can outpace WFE, accompanied by margin improvement; target price ¥57,000 corresponds to +20% upside.

  Weaknesses

  As large SPE leader, sensitive to industry inventory cycle, export restrictions, and valuation interest rate environment.

  Comparison

  Target price based on 18x average global SPE industry multiple with 15% relative premium.

  Risks

  Prolonged semiconductor industry inventory adjustment period, further strengthening of export restrictions, upward pressure on interest rates compressing valuation multiples.

• Ulvac 6728.T

  Buy rating, benefits from portfolio shift focusing on semiconductors and structural reform

  Strengths

  Report expects semiconductor focus and structural reform drive strong profit growth; target price ¥11,500 corresponds to +17% upside.

  Weaknesses

  Still faces FPD capex, margin improvement pace, and competitive environment impacts.

  Comparison

  Valuation based on 18x average global SPE industry multiple, imposing 50% industry relative discount.

  Risks

  FPD capex cooling exceeds expectations, core/non-core product competition intensifying leading to lower margins, order recognition slowing causing slower margin improvement.

• Kokusai Electric 6525.T

  Neutral rating, target price raised but limited upside

  Strengths

  Benefits from industry WFE upcycle and client investment improvement.

  Weaknesses

  Target price ¥6,700 relative to current price ¥6,508 only +3% upside, risk-reward less prominent than buy targets.

  Comparison

  Report gives Neutral, below preference for Lasertec, Ebara, Tokyo Electron, and Ulvac.

  Risks

  Changes in key client investment, further changes in export controls, competitive landscape change due to competitor strategy shifts.

• SCREEN HD 7735.T

  Sell rating, target price below current price

  Strengths

  If SPE business margins improve, market share rises, shareholder return strengthens, or market turns to value stocks, may constitute upside risk.

  Weaknesses

  Target price ¥9,400 below current price ¥10,440, implying -10% downside.

  Comparison

  Report most cautious on this stock among covered companies, target price based on industry average multiple with 50% relative discount.

  Risks

  As sell-rated target, risks are mainly upside risks: SPE margins exceed expectations, company-specific factors driving share gains, enhanced shareholder returns, market style shifting to value stocks.

Key data

• CY26 WFE ForecastUS$141.3bn, +28% YoYPreviously forecast was US$132.3bn, +20% YoY.
• CY27 WFE ForecastUS$186.2bn, +32% YoYPreviously forecast was US$160.0bn, +21% YoY, key year highlighted by report for accelerated growth.
• CY28 WFE ForecastUS$208.3bn, +12% YoYPreviously forecast was US$174.3bn, +9% YoY.
• Ebara Target Price and UpsideTarget Price ¥7,000, Current Price ¥5,268, Upside +33%Rating is Buy.
• Lasertec Target Price and UpsideTarget Price ¥55,000, Current Price ¥42,800, Upside +29%Rating is Buy*, on Conviction List.
• Tokyo Electron Target Price and UpsideTarget Price ¥57,000, Current Price ¥47,590, Upside +20%Rating is Buy.
• Ulvac Target Price and UpsideTarget Price ¥11,500, Current Price ¥9,871, Upside +17%Rating is Buy.
• Covered Company Target Price Average Adjustment12-month target price average adjusted up 4%Reflects new WFE outlook and earnings forecast adjustments.

Impact & implications

Report is positive on Japanese semiconductor equipment sector, especially benefiting companies with greater elasticity in advanced processes, memory capacity expansion, AI server related demand, and earnings upgrades. Since valuation multiples are at historical highs, relying solely on industry cyclical expansion may not support full re-rating for all stocks. Earnings upside relative to consensus, product penetration, margin improvement, and structural reform will become key differentiators.

Risks

• Semiconductor capex may shift from upcycle to downcycle, weakening WFE demand.
• If advanced process or memory investments miss expectations, it will affect equipment orders and earnings upgrade realization.
• Further strengthening of export controls may affect revenues of Japanese SPE companies facing certain customers or regions.
• Valuation multiples already at historical highs, upward interest rates or declining risk appetite may suppress stock performance.
• Improved competitiveness of domestic Chinese equipment vendors may compress shares and margins for certain equipment categories.
• Rapid appreciation of JPY against USD may affect profits and valuations of export-oriented equipment companies.

What to watch

• Whether CY27 WFE accelerates to +32% YoY growth as expected.
• Sustained pull from AI server demand on HBM, DDR, LPDDR, and advanced DRAM expansion.
• Whether NAND supply/demand tightness converts to broader equipment order recovery.
• Whether advanced logic/foundry investment spreads from select companies to more clients.
• Introduction progress of Lasertec ACTIS A200HiT in fabs.
• Realization of Ebara CMP equipment and precision/electronics business profit growth.
• Whether Tokyo Electron revenue growth continues to outpace WFE and improves margins.
• Progress of Ulvac semiconductor-focused portfolio transformation and structural reform.
• Impact of export restrictions, JPY exchange rate, and interest rate environment on valuations.