The second-quarter earnings reports from the global semiconductor supply chain have sent an unmistakably bullish signal, according to JPMorgan. The industry's demand is now more robust than it was three months ago, and pricing power is shifting substantively upstream.

In a report released on August 17, JPMorgan systematically analyzed the core signals from the quarterly reports of major global chipmakers for the April-June 2026 period. The conclusions are highly consistent and clear: demand has comprehensively surpassed expectations from three months ago, and the trend of price increases is accelerating its "diffusion" from memory chips to semiconductor equipment (SPE) and materials sectors.

The report highlights that the most critical shift in logic is that price increases and profit expansion are no longer the exclusive domain of memory chip manufacturers. Semiconductor production equipment (SPE) and tech materials suppliers are now steadily improving their gross margins through price hikes. Driven by robust demand, chipmaking giants like Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM) and Intel Corporation (NASDAQ: INTC) are broadly raising their capital expenditure (Capex) plans. Equipment makers have significantly raised their market outlook for wafer fabrication equipment (WFE), while memory giants are locking in their profit baselines for years to come through lengthy five-year Long-Term Agreements (LTAs) and substantial advance payments.

Key Points: Chip Giants Boost Capital Expenditure, Accelerating Advanced Capacity Expansion

Driven by strong demand, the world's leading chip manufacturers are intensively raising their capital expenditure plans, with funds primarily flowing to the more costly front-end equipment, while demand for back-end equipment is also growing steadily.

Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM) has raised its capital expenditure plan for calendar year 2026 (CY2026) by approximately 15%, from $52-56 billion to $60-64 billion (a 52% year-on-year increase based on the midpoint). Of this, 70-80% of the funds will be allocated to advanced process technologies. Management has explicitly stated they are working closely with SPE manufacturers to ensure equipment supply does not become a bottleneck for capacity.

Intel Corporation (NASDAQ: INTC) has raised its CY2026 capital expenditure plan from flat year-on-year (approximately $18 billion) to $20 billion (up 11% year-on-year). Equipment capital expenditure will surge 40% year-on-year, and the company expects further significant growth in CY2027. Funds are primarily directed to front-end equipment in the US, with additional investments in back-end equipment related to EMIB-T. Its 18A node is expected to enter mass production by the end of 2026, with the 14A node planned for risk production in the second half of 2027 and mass production in 2028.

SK Hynix Inc (KRX: 000660) and Samsung Electronics Co Ltd (KRX: 005930): SK Hynix has announced a CY2026 capital expenditure plan of 40 trillion Korean won (up 45% year-on-year) and has advanced the mass production ramp-up for M15X. The cleanroom for Yongin Fab 1 is scheduled to be operational in early 2027. For Samsung Foundry, Taylor Fab 1 is on track to start and gradually ramp up 2nm capacity in 2026, while Taylor Fab 2 is planned to break ground this year and begin mass production by 2030.

Key Points: Semiconductor Equipment Market Outlook Revised Upward, Price Hikes Boost Gross Margins

Compared to three months ago, the market outlook for wafer fabrication equipment (WFE) has become clearer. JPMorgan believes equipment makers are not only seeing a larger market size but, more importantly, are successfully passing on costs and boosting gross margins through "value-based pricing strategies."

WFE market size expectations have been comprehensively raised: Tokyo Electron Ltd (TSE: 8035) has revised its CY2026-27 WFE market forecast from $150-170 billion to at least $150 billion for CY2026 and at least $190 billion for CY2027. Lam Research Corporation (NASDAQ: LRCX) and KLA Corporation (NASDAQ: KLAC) have both raised their CY2026 expectations to the low end of the $150 billion range. SCREEN Holdings Co Ltd (TSE: 7735) has raised its CY2026 forecast (primarily for memory) to more than 20% year-on-year growth (at least $140 billion).

AI-driven demand density for equipment is increasing: Lam Research notes that given semiconductors' rising share in AI infrastructure, the estimated WFE demand per $100 billion of AI investment has been raised from approximately $8 billion to $9-10 billion.

Gross margin expansion (a core profit signal): Tokyo Electron Ltd (TSE: 8035) expects gross margins to reach 50% by the beginning of fiscal 2027 (compared to 47% in April-June 2026) through price increases. Lam Research Corporation (NASDAQ: LRCX) reported a gross margin of 52% in the second quarter (up from 50% in the first quarter), targeting 55% by offering high-value-added products. Applied Materials Inc (NASDAQ: AMAT) has seen its gross margin rise by about 300 basis points over the past three years, primarily due to a successful value pricing strategy, with its semiconductor systems segment gross margin exceeding 55%. KLA Corporation (NASDAQ: KLAC) plans to increase prices by adding value to new products, expecting margins to rise as we enter 2027.

JPMorgan believes the continuous upward revision of WFE market size forecasts, combined with the substantial improvement in equipment makers' gross margins, suggests that the earnings resilience of the semiconductor equipment industry is being systematically underestimated.

Key Points: Indium Phosphide Substrate Supply Gap Exceeds 30%, Capacity Expansion and Long-Term Agreements

In the tech materials sector, the market for indium phosphide (InP) substrates is facing extreme tightness, prompting suppliers to aggressively expand capacity and shift to larger 6-inch wafers.

The supply-demand imbalance is severe: Lumentum Holdings Inc (NASDAQ: LITE) and Coherent Corp (NYSE: COHR) both report stronger-than-ever demand. Lumentum indicates the current supply gap exceeds 30%. With InP substrate supply being the biggest constraint, both companies have signed long-term agreements (LTAs) with AXT Inc (NASDAQ: AXTI).

Capacity expansion is on a multiple-fold scale: JX Advanced Metals Corporation plans to increase InP substrate capacity by 7-10 times by 2030. AXT Inc (NASDAQ: AXTI) aims to triple its capacity year-on-year by the end of 2026 (quarterly sales reaching $60 million) and more than double it year-on-year by the end of 2027 (over $130 million).

Technology and cost optimization: Coherent is transitioning to 6-inch substrates, which can quadruple output and halve costs compared to 3-inch wafers while maintaining high yields. AXT has also made significant progress in developing the technically challenging 6-inch substrates.

Key Points: Memory Chip Long-Term Agreement Details Revealed, Advance Payments Lock in Years of Profits

Global memory chip manufacturers are gradually disclosing details of their long-term agreements (LTAs). JPMorgan believes these agreements are not only long-term but also include substantial advance payments, which significantly reduce the risk of price volatility and provide a core support for the revaluation of memory giants.

Samsung Electronics Co Ltd (KRX: 005930) has finalized five LTAs with data center customers, with another five in the final stages of negotiation. These are based on 5-year rolling contracts and are expected to involve substantial advance payments. SK Hynix Inc (KRX: 000660) has signed 10 contracts, each based on a 5-year term with advance payments, designed to mitigate price volatility. SanDisk Corporation has signed eight contracts (three with US hyperscale cloud providers) with an average term of four years (maximum five years), and some customers have already inquired about contracts exceeding five years. These contracts typically involve advance payments and cover 50% of its bit demand for fiscal 2027 and approximately two-thirds of demand for fiscal 2028.

A striking profit floor: SanDisk management reveals that even at the base price under a variable pricing structure (including both price ceilings and floors), its gross margin can still reach approximately 80%.

The report notes that the accelerated adoption of LTAs provides a "floor price" protection for the profitability of memory chip makers. The detail disclosed by SanDisk, that the "floor price corresponds to a gross margin of about 80%," is particularly crucial, suggesting that profitability remains strongly supported even in the most pessimistic pricing scenario. As more LTA details emerge, the logic for a valuation re-rating of the memory chip sector is expected to be gradually recognized by the market.