Disco's 1Q results were broadly in line with expectations, with generative AI demand still strong but limited near-term upside surprise

Overview

This report is J.P. Morgan's review of Disco (6146.T)'s 1Q results. The report believes the company's 1Q operating profit, shipment value, and newly announced 2Q shipment guidance were all broadly in line with market expectations, with little clear numerical surprise in the quarter itself; however, generative AI-related demand continues to support demand for dicing saws, grinders, and related consumables, and the company is still maintaining high factory utilization while extending the arrangement for headquarters staff to support factory production.

Core views

The core view is to maintain a Neutral rating: on one hand, Disco has a high market share in grinders and dicing saws related to generative AI applications, and medium- to long-term earnings still have the potential for relatively fast growth; on the other hand, both 1Q results and 2Q guidance were close to expectations, lacking the numerical upside surprise needed in the short term to drive a rating upgrade. The report also focuses on about ¥3bn of advanced-packaging-related R&D equipment shipments being delayed from 1Q into subsequent quarters, a possible pullback in 2Q after concentrated OSAT shipments in 1Q, and trends in high-margin consumables sales.

Analysis framework

The report uses a method of comparing actual results with market consensus expectations and J.P. Morgan forecasts, breaking down operating profit, shipment value, major product categories, customer demand mix, FX assumptions, and quarterly guidance, while combining demand signals from generative AI, memory, logic, OSAT, and opto-semiconductors to judge the quality of future growth. On valuation, the December 2026 target price is based on the FY2027 EPS forecast and a P/E multiple of about 41x.

Methodology notes

• Earnings comparisonComparison of actual results with consensus expectations

  Compare 1Q operating profit and shipment value with Bloomberg consensus expectations and broker forecasts.

  1Q operating profit of ¥49.0bn was close to the market expectation of ¥48.6bn; shipment value of ¥135.9bn was also broadly in line with expectations, so the report judges that the quarter's numerical surprise was limited.

• Guidance analysisQuarterly shipment guidance tracking

  Use 2Q shipment guidance as a key observation metric.

  2Q shipment guidance is ¥141.0bn, close to the market's pre-results expectation of about ¥140bn, indicating that near-term demand remains solid but the degree of upside surprise is limited.

• Valuation methodsFY2027 EPS and P/E valuation

  The target price is based on the FY2027 EPS forecast and a P/E of about 41x.

  A P/E of about 41x is one standard deviation above the 10-year historical average of about 28x, reflecting the valuation premium given to improved growth prospects in the back-end process equipment market.

Asset mapping & comparison

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

• Disco (6146.T)

  Core covered name

  Strengths

  It has a high market share in grinders and dicing saws related to generative AI applications, high factory utilization, and consumables and services support earnings quality.

  Weaknesses

  1Q figures and 2Q guidance lacked a clear upside surprise, some advanced-packaging R&D tool shipments were delayed, and capacity expansion may constrain growth realization.

  Comparison

  Both 1Q operating profit and shipment value were close to Bloomberg consensus expectations; 2Q shipment guidance was also close to the market's pre-results expectation.

  Risks

  A slowdown in generative AI demand, a semiconductor downcycle, margin dilution from a product mix shift toward volume-production demand, reduced customer strategic investment, or loss of market share.

Key data

• 1Q operating profit¥49.0bnQoQ -17%, YoY +42%; Bloomberg consensus expectation was ¥48.6bn.
• 1Q shipment value¥135.9bnQoQ +12%, YoY +22%; broadly in line with market expectations.
• 2Q operating profit guidance¥55.9bnQoQ +14%, YoY +26%; Bloomberg consensus expectation was ¥62.2bn, and J.P. Morgan forecast was ¥56.0bn.
• 2Q shipment guidance¥141.0bnQoQ +4%, YoY +46%; close to the market's pre-results expectation of about ¥140bn.
• Current share price¥69,410Price date is July 23, 2026.
• Target price¥83,000December 2026 target price.
• FX assumption¥159/US$FX assumption used in the 2Q guidance.
• Delayed advanced packaging-related shipmentsapproximately ¥3bnPart of the R&D tools originally expected to be recognized in 1Q has been delayed to subsequent quarters.

Impact & implications

The report's investment implication is balanced: generative AI demand, elevated memory-related shipments, strong logic demand, and gradually increasing opto-semiconductor demand provide medium- to long-term support; however, near-term results and guidance are close to market expectations, OSAT shipments are expected to pull back in 2Q after being concentrated in 1Q, and capacity expansion could become a bottleneck, so the rating remains Neutral rather than more positive.

Risks

• A slowdown in generative AI-related demand.
• A shift in product mix toward volume-production demand may cause margin dilution.
• The semiconductor market may enter a downcycle.
• An economic recession may reduce customer strategic investment.
• Recovery in end-product demand such as smartphones may be delayed.
• The company may lose market share.
• Capacity expansion plans may become a growth bottleneck.

What to watch

• Whether 2Q shipment value reaches the ¥141.0bn guidance.
• Whether memory-related shipments remain elevated.
• Whether demand from logic customers continues to be strong.
• The extent of the pullback in OSAT shipments in 2Q after the 1Q concentration, especially China-related demand.
• The pace of recognition in subsequent quarters for delayed orders of advanced-packaging-related R&D tools.
• How long the arrangement of about 100 headquarters staff supporting factory production continues and the capacity pressure it reflects.
• Trends in high-margin consumables sales and factory utilization.