Micron and other memory makers are driving a 'supercycle' for this corner of the chip sector

By Britney Nguyen

Chip-equipment companies are getting unprecedented visibility into companies' supply plans, a UBS analyst says

Micron and other memory-chip makers are adding capacity, which should drive revenue for wafer fab equipment suppliers, a UBS analyst says.

Memory chip makers are ramping up production facilities to address the supply crunch, and that bodes well for another crucial part of the chip industry.

Constraints on cleanroom space, where chip manufacturing takes place, are clearing now that Micron Technology (MU), Samsung Electronics (KR:005930) and SK Hynix (KR:000660) are starting up operations at new fabrication sites, UBS analyst Timothy Arcuri said. Meanwhile, "several foundries" have either obtained or optimized cleanrooms to support more shipments of wafer fab equipment, he added.

Arcuri said the WFE industry could be in the "early innings of [a] supercycle" that could reach $250 billion in revenue by 2028, he said in a Tuesday note.

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Customers are starting to share eight quarters of demand visibility with semiconductor-production equipment suppliers, Arcuri said, which is "something we have never heard before" in his nearly three decades of covering the industry.

Arcuri expects overall WFE revenue to grow 27% this year, to $147 billion, with revenue from equipment for dynamic random-access memory and NAND memory chips increasing 50%, and revenue from equipment for logic chips made by companies such as Taiwan Semiconductor Manufacturing (TSM) and Intel (INTC) rising 12%. For 2027, Arcuri sees total WFE revenue growing 35% to $200 billion.

The UBS team raised their revenue expectations for memory WFE revenue by $10.5 billion for next year, reflecting accelerating spending on DRAM, as much of the new capacity coming online is focused on that type of memory due to long-term agreements, Arcuri said. A larger portion of cleanroom space is expected to go towards NAND starting in the second half of 2028, he added.

Shares of Micron slipped 1.4% on Tuesday, well above its session lows, along with other chip stocks. Despite Tuesday's decline, the PHLX Semiconductor Sector SOX is up 73% so far this year.

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On the other hand, shares of WFE makers, including KLA (KLAC) and Applied Materials (AMAT), were up on Tuesday. Arcuri said he prefers Lam Research (LRCX) and Applied Materials, as KLA is trading at an expensive multiple that offers little upside.

Although "many investors view WFE upside as limited in some way by litho capacity," referring to lithography equipment that is used to print designs onto wafers, Arcuri said he doesn't agree.

ASML (ASML) in the Netherlands is the only company in the world that makes the extreme ultraviolet lithography machines needed to produce advanced chips from companies like Nvidia (NVDA).

Arcuri said the Dutch equipment maker likely has enough capacity to see more than $46 billion in systems revenue next year, which would support his thesis for total WFE revenue to reach about $200 billion in 2027.

"While fab availability remains limited near-term, chip companies are finding ways to maximize utilization," Arcuri said, adding that he expects several large chip fabs to ramp up production in the second half of this year through 2027.

-Britney Nguyen

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06-09-26 1758ET