Bernstein Significantly Raises Semiconductor Equipment Forecasts, Nearing $200 Billion by 2028
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Bernstein Significantly Raises Semiconductor Equipment Forecasts, Nearing $200 Billion by 2028
Driven by memory expansion, the institution significantly raised global wafer fab equipment expenditure forecasts for 2026-2028, favoring ASML, Applied Materials, and local Chinese equipment manufacturers.
- 2026 global WFE forecast raised to $148 billion (+21.4% YoY)
- 2028 forecast approaches $200 billion, primarily driven by DRAM and NAND capital expenditures
- Significant upward revision for China market demand, with stronger expansion expectations for YMTC and CXMT
- Raised target prices for Lam Research and KLA, maintaining ASML as the top pick
- Bullish on share gains for local Chinese equipment manufacturers AMEC, NAURA, and Piotech
Report interpretation
Overview
The core thesis of this report is the significant upward revision of global semiconductor wafer fab equipment (WFE) expenditure forecasts for 2026-2028, as the industry enters a multi-year uptick cycle driven by memory (DRAM/NAND) expansion. The institution raised the 2026 global WFE forecast from $141 billion to $148 billion, with the 2028 forecast reaching $198 billion, nearing the $200 billion milestone. This adjustment is primarily based on optimistic expectations for increased capital expenditures by memory manufacturers in China and non-China regions, as well as growing demand for wafer-level packaging. Accordingly, the report raised target prices for Lam Research and KLA and reaffirmed Outperform ratings for global leaders like ASML and Applied Materials, as well as local Chinese equipment manufacturers.
Core views
Comprehensive demand recovery with memory as the core driver. The report notes that global non-China WFE is expected to grow 25% in 2026 and 21% in 2027, primarily due to upward revisions in DRAM forecasts. The 2027 DRAM WFE forecast was raised by $3.4 billion to $57 billion, with growth expectations increasing from 15% to 25%. Meanwhile, equipment demand in the China market was significantly revised upward, with increases of $2.3 billion, $6.7 billion, and $16.1 billion for 2026-2028, respectively. This is mainly driven by aggressive expansion signals from Yangtze Memory Technologies (YMTC) and ChangXin Memory Technologies (CXMT), particularly the accelerated capacity expansion supported by CXMT's IPO. Additionally, China needs to establish more DRAM capacity to support future local HBM production. Global leaders benefit from differentiated but broadly positive logic. ASML is seen as the top pick, with projected 2025-2028 revenue CAGR of 23%, driven by advanced logic and DRAM capital expenditures and increasing lithography intensity (EUV shipments are expected to double from 48 units in 2025 to 87 units in 2028). Applied Materials (AMAT) is the preferred U.S. equipment stock due to its broad exposure to advanced logic, DRAM, and packaging, as well as relatively cheap valuation. Lam Research (LRCX) benefits from NAND upgrades and GAA technology transitions, while KLA (KLAC) enjoys premium valuation due to its structural advantages in advanced logic and lower China substitution risks. Local Chinese equipment manufacturers face accelerated substitution opportunities. The report maintains Outperform ratings for AMEC, NAURA, and Piotech. Channel checks indicate that local advanced logic and memory capacity expansion plans exceed previous guidance, with AMEC raising its 2026 order growth guidance from 30% to 50%. As localization accelerates, these domestic players with broad product portfolios and technological advantages will continue to gain market share.
Analysis framework
The report adopts a top-down supply-demand framework combined with bottom-up channel validation. First, it aggregates the latest commentary and guidance from major semiconductor equipment suppliers to build a global and regional (China/non-China) WFE total expenditure model. Second, it breaks down the analysis by downstream applications (DRAM, NAND, logic/foundry) and process technologies (lithography, etching, deposition, packaging), focusing on inflection points in the memory cycle and trends in lithography intensity. Finally, it combines individual stock exposures (e.g., ASML's EUV/DUV mix, LRCX's NAND exposure) and valuation levels to derive specific investment preferences and target price adjustments.
Methodology notes
Semiconductor Equipment Expenditure Forecast
By analyzing capital expenditure plans of downstream wafer fabs (e.g., DRAM, logic manufacturers) (demand side) and equipment suppliers' delivery capabilities (supply side), the report predicts the industry's cyclicality. The core of this report is the significant upward revision of equipment expenditure forecasts based on memory manufacturers' increased expansion willingness (demand revision).
Lithography Intensity Analysis
Refers to the number of lithography steps or equipment value required to manufacture a unit of chips. The report notes that as DRAM nodes evolve to 1c and advanced logic processes develop, lithography intensity increases significantly, leading to substantial growth in demand and value for lithography equipment (e.g., ASML's EUV/DUV) even with limited wafer volume growth.
Target P/E Valuation
The report uses target P/E (Target PE) valuation for companies like ASML, e.g., assigning ASML a target PE of 35x and multiplying it by forecasted EPS to derive the target price. This is a common relative valuation method for mature semiconductor equipment stocks.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- ASML (ASML.NA)Beneficiary: Increasing lithography intensity and DRAM/advanced logic expansion
- Strengths
- EUV monopoly, stable DUV demand, projected 2025-2028 revenue CAGR of 23%
- Weaknesses
- China revenue expected to decline per guidance
- Comparison
- Top European semiconductor pick
- Risks
- Changes in export control policies
- Applied Materials (AMAT)Beneficiary: Broad product coverage across logic, DRAM, and packaging
- Strengths
- Most attractive valuation among the three U.S. giants, China risks partially priced in
- Comparison
- Top U.S. equipment pick, better value than LRCX and KLAC
- Lam Research (LRCX)Beneficiary: NAND upgrade cycle and GAA, HBM technology transitions
- Strengths
- Strong execution, high NAND exposure
- Weaknesses
- Relatively high valuation
- Comparison
- Ranks after AMAT, with better short-term growth than KLAC
- KLA (KLAC)Beneficiary: Advanced logic process inspection demand and structural growth
- Strengths
- Solid competitive position, lower China substitution risk, strong capital allocation discipline
- Weaknesses
- Slower growth this year due to longer delivery cycles compared to peers
- Comparison
- Trades at a valuation premium, strong 2027 outlook
- AMEC (AMEC)Beneficiary: Local Chinese wafer fab expansions and localization substitution
- Strengths
- Leading etching technology, order growth guidance raised to 50%
- Comparison
- Top pick among local Chinese equipment manufacturers due to high memory exposure
- NAURA (NAURA)Beneficiary: Platform layout covering deposition, etching, cleaning, and more
- Strengths
- Broadest product portfolio, diverse customer base
- Comparison
- Benefits from accelerated domestic share gains
- Piotech (Piotech)Beneficiary: Thin-film deposition equipment and advanced packaging hybrid bonding equipment
- Strengths
- Strong product innovation, entry into advanced packaging
- Comparison
- High growth potential, benefits from localization
Key data
- 2026 Global WFE Forecast$148 billionUp from previous forecast of $141 billion, +21.4% YoY
- 2027 Global WFE Forecast$175 billionUp from previous forecast of $158 billion, +18.2% YoY
- 2028 Global WFE Forecast$198 billionSignificantly up from previous forecast of $164 billion, +13% YoY
- 2027 DRAM WFE Forecast$57 billionUp from $48 billion, reflecting accelerator expenditures
- LRCX Target Price$340Up from $325
- KLAC Target Price$1975Up from $1875
- ASML 2025-2028 Revenue CAGR23% driven by EUV/DUV growth
Impact & implications
For the industry, this implies that the semiconductor equipment sector is not experiencing a short-term rebound but rather a multi-year uptick cycle, particularly in the memory segment. For investors, the report recommends focusing on companies with memory exposure and high technological barriers. ASML offers deterministic growth due to its lithography monopoly and increasing intensity; among U.S. equipment suppliers, AMAT offers the best value, while LRCX and KLAC benefit from NAND recovery and leading logic processes, respectively. Local Chinese equipment manufacturers, amid geopolitical tensions, demonstrate above-average order growth due to aggressive domestic wafer fab expansions and localization, representing a key alpha source.
Risks
- Further tightening of export controls due to geopolitics
- Semiconductor industry cyclicality leading to lower-than-expected capital expenditures
- Declining China revenue as a drag on global equipment suppliers' performance
- Historically high valuations, sensitivity to market sentiment
What to watch
- IPO progress and subsequent expansion pace of YMTC and CXMT
- Guidance revisions for China revenue by major equipment suppliers in upcoming quarters
- DRAM and NAND price trends and manufacturer profitability changes
- ASML's EUV equipment deliveries and High-NA EUV adoption progress