Wall Street's top investment institution, KeyBanc Capital Markets, recently released a research report stating that the global semiconductor industry is poised for a year of even stronger demand. It specifically highlighted that against the macro backdrop of a booming global wave of AI computing infrastructure construction and a "storage chip super cycle," semiconductor equipment manufacturers are also set to enter a super cycle, positioning them as the largest beneficiaries of the rapid capacity expansion trends for AI chips (including AI GPUs/AI ASICs) and DRAM/NAND memory chips. Another Wall Street giant, Citigroup, in a recent report, similarly indicated that the semiconductor equipment sector is one of the biggest winners amidst soaring AI computing and storage demand. Citigroup's report predicts the global semiconductor equipment sector will enter a "Phase 2 bull market uptrend cycle," suggesting a new bull market trajectory following the super cycle of 2024-25.

Citigroup's report emphasizes that the primary investment strategy for chip stocks in 2026 is absolutely not a "broad-based bullish view on semiconductors," but rather a clear focus on the leading segment of the semiconductor equipment market—Wafer Fab Equipment (WFE)—specifically naming ASML Holding NV (ASML.US), Lam Research (LRCX.US), and Applied Materials (AMAT.US). Citigroup's analyst team stated that the "Phase 2 uptrend cycle" signifies a shift in valuation anchor from "valuation bottom recovery" to "sustained earnings revisions." They argue that when the total WFE market shifts from the base case to a bull scenario, the earnings elasticity of leading semiconductor equipment companies could potentially exceed their revenue elasticity, driven by economies of scale, improved capacity utilization, and a significantly higher proportion of advanced chip manufacturing processes. Consequently, Citigroup is using a portfolio of ASML, Lam Research, and Applied Materials to express its outlook for a steep "uptrend slope."

As the global hyperscale AI data center construction drive, led by tech giants like Microsoft, Google, and Meta, intensifies, it is comprehensively accelerating the expansion of 3nm and below advanced process AI chips, CoWoS/3D advanced packaging capacity, and DRAM/NAND memory chip capacity by major chip manufacturers. This solidifies the long-term bull market thesis for the semiconductor equipment sector. Following Google's major launch of the Gemini 3 AI application ecosystem in late November, this cutting-edge AI software quickly gained global popularity, causing a sudden surge in Google's AI computing demand. The immense AI token processing volume immediately upon the release of the Gemini 3 series forced Google to significantly reduce free access to Gemini 3 Pro and Nano Banana Pro and impose temporary restrictions even on Pro subscribers. Coupled with recent South Korean trade export data showing persistently strong demand for SK Hynix and Samsung Electronics' HBM memory systems and enterprise SSDs, this further validates Wall Street's assertion that the "AI boom is still in the early construction phase where computing infrastructure supply cannot meet demand."

According to Wall Street giants Morgan Stanley, Citigroup, Loop Capital, and Wedbush, the global wave of AI infrastructure investment centered on AI computing hardware is far from over; it is merely at the beginning. Driven by an unprecedented "storm of AI inference-side computing demand," this global AI infrastructure investment wave, expected to last until 2030, could reach a staggering scale of $3 to $4 trillion. A recent Bank of America report indicates the global AI arms race remains in the "early to middle stages." Vanguard, one of the world's largest asset managers, noted in a report that the AI investment cycle might only be 30%-40% complete towards its ultimate peak, while also cautioning that the risk of a correction in large-cap tech stocks is indeed increasing.

Regarding stock performance, the U.S. semiconductor equipment sector has been exceptionally strong since the start of the year. The U.S. ADR price of lithography giant ASML has already hit a record high in 2026, with a single-day gain of over 8% on January 2nd and a year-to-date surge of 27%, bringing its market capitalization to $520 billion. Lam Research, focused on etching/deposition and related process capabilities, has repeatedly hit new all-time highs since the second half of 2025, with a year-to-date surge of 30% in 2026. Applied Materials, which covers almost the full suite of high-end semiconductor equipment, has also repeatedly reached new highs at the start of 2026, with a year-to-date gain of 28%. These three semiconductor equipment giants have significantly outperformed both the S&P 500 index and the Nasdaq 100 index, often seen as a bellwether for tech stocks.

The latest semiconductor industry outlook data from the World Semiconductor Trade Statistics (WSTS) organization suggests the global chip demand expansion trend is set to continue strongly in 2026. Furthermore, MCU chips and analog chips, which have experienced persistently weak demand since late 2022, are also expected to enter a robust recovery curve. WSTS forecasts that after a strong rebound in 2024, the global semiconductor market will grow by 22.5% in 2025, reaching a total value of $772.2 billion, higher than its spring outlook. Building on this strong growth, the semiconductor market value in 2026 is expected to expand significantly to $975.5 billion, approaching SEMI's projected $1 trillion market size target for 2030, implying a potential year-on-year surge of 26%. WSTS stated this consecutive two-year strong growth trend will be primarily driven by sustained momentum in the logic chip sector, led by AI GPUs/TPUs, and the memory sector, dominated by HBM memory systems, DDR5 RDIMM, and enterprise data center SSDs. Both sectors are expected to achieve very strong double-digit growth, fueled by continuously robust expansion demand in areas like AI inference systems and cloud computing infrastructure.

The wave of chip capacity expansion is beginning, and semiconductor equipment manufacturers are poised to reap massive benefits. Demand for DRAM/NAND memory chips remains persistently strong, and prices for these product series (e.g., DDR4/DDR5/enterprise SSD series) are exhibiting wild expansion, primarily because the deluge of AI computing has pushed the demand for memory chips and their importance to AI training/inference systems to unprecedented heights. Global AI computing demand continues to show an exponential growth trend, with supply struggling to keep pace with demand intensity. This is evident from the exceptionally strong quarterly results announced by the "world's chip king," Taiwan Semiconductor Manufacturing (TSM.US), on Thursday. TSMC's Q4 gross margin surpassed 60% for the first time, net profit significantly beat expectations, and it forecasted full-year 2026 revenue growth of nearly 30%. The company also substantially raised its 2026 capital expenditure guidance to $52-$56 billion, with both core guidance figures far exceeding market expectations. Furthermore, TSMC management significantly raised its compound annual growth rate (CAGR) expectation for its AI-related chip foundry business from the previous "mid-40% range" to the "mid-to-high 50% range." The exceptionally strong results and future guidance from this world's largest chip manufacturer triggered a broad rally in U.S. chip stocks on Thursday, with memory chips and semiconductor equipment showing the strongest gains, as TSMC's capital expenditure expansion is largely for purchasing various high-end semiconductor equipment covering lithography, etching, thin-film deposition, advanced packaging, testing, and other chip manufacturing steps.

It is noteworthy that the market's strong expectations for TSMC's capacity expansion focus not only on the massive data center AI chip orders from the three leading AI chip designers—Nvidia, AMD, and Broadcom—and the substantial consumer electronics chip orders consistently brought by Apple annually. In the data center enterprise high-performance SSD sector (falling under NAND end applications), SSD controller chips for high-performance NVMe (especially PCIe Gen5/Gen6) are extremely dependent on TSMC's advanced process capacity. This implies that TSMC's current capacity is inevitably far from sufficient to meet the "endless orders" driven by AI computing and storage, making massive capacity expansion urgently necessary. The semiconductor investment chain of "computing-storage-advanced chip manufacturing" pulled by the current AI infrastructure frenzy dictates that the stickiness of semiconductor equipment capital expenditure (capex) is stronger than in any previous cycle. Massive computing demand based on AI training/inference not only boosts demand for advanced process logic chips but also significantly increases demand intensity for high-end memory chips (especially HBM/enterprise SSD related). Against the backdrop of rising chip manufacturing process complexity, the number of "leading advanced process steps" per wafer increases, making it easier for the equipment side to demonstrate sustained demand and improved order visibility.

Beyond TSMC and Micron, which have already announced major capacity expansion plans, Citigroup's analyst team predicts that as demand for AI chips and memory chips continues to surge, the world's three largest chip manufacturers—SK Hynix, Samsung Electronics, and Intel—will significantly raise their semiconductor capital expenditure (capex) guidance for 2026 and beyond in upcoming financial disclosures. Consequently, they anticipate that global Wafer Fab Equipment (WFE) spending in 2026 is more likely to align with their "most optimistic forecast scenario." Citigroup's team specifically highlighted that Micron Technology, the largest memory chip competitor to SK Hynix and Samsung Electronics, already raised its fiscal 2026 (ending August 2026) capital expenditure from a previous $18 billion to $20 billion during its December 2025 earnings call, implying a substantial 45% year-on-year increase, with capital expenditure for chip fabrication plant construction nearly doubling. Micron also indicated that fiscal 2027 capital expenditure would continue to grow. As the most direct competitor to Samsung and SK Hynix in the memory chip market, Micron's significant expansion moves may prompt these two South Korean memory chip giants to undertake corresponding capital expenditure expansions to maintain their market positions.

Citigroup's semiconductor investment strategy locks onto the value transmission chain from "surging capex by major chip manufacturers" to "expansion of the total WFE market size," and finally to "order/revenue/profit expansion for leading semiconductor equipment companies," betting on continued upward momentum in semiconductor equipment prosperity during 2026. "We recently attended the SEMI Industry Strategy Symposium in San Francisco," wrote KeyBanc's analysts in a client note. "Our first takeaway is that the current market consensus is that semiconductor market sales will reach $1 trillion this year or next year at the latest. Recalling the same conference last year, the most optimistic forecast was for 2028, while the consensus was based on expectations for 2029-2030. This shift is understandable—driven by seemingly unlimited budgets for hyperscale AI data centers like 'Stargate,' demand for AI GPUs/AI ASICs, the penetration expansion of 2nm and below advanced process nodes, and the doubling of memory product prices. These dynamics seem largely priced into stock prices, but when the narrative shifts to a super cycle for semiconductor equipment, you have to participate. Admittedly, we heard some necessary words of caution, but essentially no one believes this boom will end soon."

Unlike Citigroup's focus on the three giants, KeyBanc highlighted Applied Materials (AMAT.US), AEI Industries (AEIS.US), and MKS Instruments (MKSI.US) as market focal points in Friday's U.S. semiconductor equipment trading, primarily because KeyBanc Capital Markets significantly raised its 12-month target stock prices for these three companies in its latest research report. For AEI Industries, KeyBanc reiterated its "Overweight" bullish rating and raised the target price from $240 to $280, expecting the stock's surge over the past 9 months to continue. "While the stock has appreciated significantly since April, we believe much of the performance has been driven by AEI's exposure to the data center segment, and we continue to see multiple ways for AEI to win over the coming years," KeyBanc's analysts wrote. They also noted potential for market share gains and operational improvements, including through acquisitions.

KeyBanc's analysts also maintained their "Overweight" rating on Applied Materials, dubbed the "semiconductor equipment superstore," and significantly raised the target price from $285 to $380. They argued that despite relative underperformance, Applied Materials' diverse business and exposure to key growth areas like advanced packaging and DRAM position it well. They noted its crucial role across nearly every chip manufacturing step, from deposition to etching and polishing, and its importance in advanced packaging and HBM manufacturing, identifying these as strong medium-term growth vectors.

In contrast to Applied Materials, Lam Research's advantages are comprehensively concentrated in the high-aspect-ratio (HAR) etching/deposition and related process capabilities required for advanced HBM memory, with 3D NAND/advanced DRAM structures and interconnects also highly dependent on Lam's proprietary HAR processes.

KeyBanc's analysts also substantially raised their target price for MKS Instruments to $250, up from a previous $180, and maintained an "Overweight" rating. They expressed confidence in MKS's free cash flow, broad subsystem exposure, and its leading position in power products for NAND etching tools and advanced packaging drilling and filling, expecting these factors to drive accelerated revenue and EPS growth fueled by both cyclical recovery and long-term expansion in advanced packaging capacity. They view MKSI as a preferred way to gain exposure to the semiconductor equipment cycle uptrend due to these factors and its relatively lower valuation premium compared to peers. MKS's equipment is widely used in etching, thin-film deposition, and advanced packaging processes, with its leading subsystems and power tools holding solid, long-term market share and order growth trends in high-performance enterprise NAND storage and advanced packaging markets.