A leading Chinese brokerage believes the recent correction in US-listed semiconductor equipment stocks has made valuations more attractive for investors. The firm's analysts project the current upcycle, driven by artificial intelligence demand, will extend at least through 2028, while market expectations for downstream capital spending in 2027-2028 may still be too conservative.

The brokerage notes that the July 2026 pullback in the sector was triggered by multiple factors, including Meta's sale of computing power, deleveraging in markets like South Korea, and escalating geopolitical tensions, all compounded by crowded positioning in AI semiconductor hardware. However, as these headwinds have been gradually priced in and second-quarter earnings have been released, the risk-reward profile for the sector has improved significantly. The firm highlights Lam Research and Applied Materials as preferred picks.

On market sizing, the report cites SEMI data showing the global semiconductor equipment market reached $135.1 billion in 2025, up 15.4% year-over-year. The brokerage forecasts this will grow to $334.3 billion by 2028, representing a compound annual growth rate of approximately 35%. This extended upcycle is supported by stronger AI-driven demand visibility. By segment, front-end wafer fabrication equipment is expected to reach $281.8 billion by 2028, accounting for 84% of the total market, while back-end packaging and testing equipment should reach $20.6 billion and $31.9 billion respectively.

A key investment thesis centers on expectations for downstream capital expenditure. While customers have already significantly raised their 2026 spending guidance, particularly memory manufacturers, the market has yet to fully price in spending levels for 2027-2028. The brokerage estimates combined capital spending by major overseas chipmakers will reach $207.8 billion in 2026, $295.7 billion in 2027, and $384.2 billion in 2028, representing year-over-year growth of 62%, 42%, and 30% respectively — well above Bloomberg consensus estimates of 58%, 29%, and 11%.

The competitive landscape remains stable at the top, with the top five players in wafer fabrication equipment capturing over 70% of market revenue in 2025, with etching equipment seeing the most significant gains. In the testing equipment market, the top two companies maintain a duopoly with over 70% share, while in packaging equipment, bonding machine leaders hold similar market shares and Disco dominates the dicing saw segment.

On the supply side, equipment makers and their upstream component suppliers are expanding capacity in tandem to meet order commitments. The brokerage expects global cleanroom capacity to expand further by 2027, and while supply conditions remain tight, they should not become a bottleneck for equipment shipments. Delivery lead times have extended across the board, with front-end equipment makers now quoting lead times of up to two years. Equipment manufacturers have gained some pricing power over suppliers but continue to employ value-based pricing, with price increases driven primarily by higher adoption of premium products.

Regarding end-market exposure, front-end equipment makers have historically had higher memory-related revenue and have already begun increasing this exposure. The brokerage expects memory exposure to rise across all major equipment companies. Meanwhile, exposure to the Chinese mainland market is normalizing, with front-end equipment makers having significantly reduced their China exposure while packaging and testing equipment makers have maintained relatively stable levels.

The brokerage recommends focusing on equipment companies that are gaining market share in their specific segments, have greater memory exposure, or possess unique competitive advantages.

Key risks include slower-than-expected commercialization of AI, weaker-than-expected capital spending by downstream wafer fabs, global macroeconomic volatility affecting equipment demand, geopolitical conflicts disrupting supply chains, further tightening of US export controls, intensifying industry competition, technology development setbacks, and loss of key personnel or technology leaks.