CITIC Securities: Short-term adjustments will not change the upward cycle, it is recommended to focus on segmented semiconductor equipment manufacturers

The Zhitong Finance App learned that CITIC Securities released a research report saying that it is expected that the current AI-driven semiconductor equipment implementation cycle will continue until at least 2028, and the market still has certain differences in capital expenditure levels for major downstream customers in 2027-2028. In terms of capacity supply, semiconductor equipment manufacturers and their upstream are actively expanding production according to orders, and the bank believes that equipment delivery is expected to be guaranteed. The bank recommended focusing on semiconductor equipment vendors with increased segmentation share, greater storage exposure, and unique logic.

CITIC Securities's main views are as follows:

The overall US semiconductor equipment sector pulled back in July 2026, but the current sector allocation value was further highlighted

Affected by factors such as Meta's sale of computing power, deleveraging represented by the Korean market, and the intensification of geopolitical conflicts, combined with the fact that AI semiconductor hardware holdings were previously crowded, the overall US semiconductor equipment sector pulled back in July 2026. However, along with the gradual pricing of previous disruptive factors and the gradual disclosure of the 26Q2 financial report, the bank believes that the current allocation value of the semiconductor equipment sector in the US stock market has been further highlighted. In this report, the bank updated and analyzed content such as market space, competitive landscape, capacity supply, bargaining power, storage exposure, and mainland China market exposure based on the latest financial reports and investors' key concerns during the roadshow, and focused on recommending Ram's research and application materials.

Market space: The upward cycle will last longer, and downstream customer capital expenditure expectations are still poor in 2027-2028

1) Market space: According to SEMI data, the global semiconductor equipment market will reach US$135.1 billion in 2025 (+15.4% YoY), and the bank expects the market to reach US$334.3 billion in 2028 (CAGR of about 35%). This upward cycle will continue for longer, mainly due to demand for AI-driven equipment and significantly higher order visibility.

2) Market structure: The bank expects the front-end equipment (wafer manufacturing equipment) market to reach US$281.8 billion in 2028, accounting for 84% of the total market; the back-end packaging equipment and testing equipment markets are expected to reach US$206/31.9 billion respectively, accounting for 6%/10% of the overall market.

3) Growth drivers: The 2026 capital expenditure guidelines for downstream customers have been drastically revised (especially for storage vendors), but the market's expectations for 2027-2028 capital expenditure levels are still poor. The bank expects the total capital expenditure of leading overseas manufacturers from 2026-2028 to about US$2078/2957/384.2 billion, corresponding year-on-year growth rates of 62%/42%/30%, respectively, which is significantly higher than Bloomberg's agreed expectations of 58%/29%/11%.

Competitive landscape: The leading position is relatively stable, and the share of some links is rising

1) Wafer manufacturing equipment market: CR5 accounts for more than 70% of revenue in 2025, and the intensity of the etching process is the most obvious increase.

2) Test equipment market: Testing machines account for more than 70% of revenue, and CR2 has a monopoly on the testing machine market.

3) Packaging equipment market: Leading manufacturers of bonding machines have similar market shares, and the dicing machine Disco is the only one.

Capacity supply: Simultaneous expansion of the industrial chain to ensure delivery and adopt value pricing

According to information from the 26Q2 performance exchange meeting between US stock equipment manufacturers and parts manufacturers,

1) Capacity supply: Equipment manufacturers continue to expand their own manufacturing capacity, while simultaneously transmitting demand to upstream component manufacturers and locking in production capacity. The bank expects global cleanroom space production capacity to be further released in 2027, while upstream component manufacturers are actively planning to expand production. The bank believes that although supply is tight, it will not become a core risk limiting equipment shipments.

2) Delivery cycle: The delivery cycle of equipment manufacturers has been further extended, and the delivery cycle of leading equipment manufacturers is relatively longer (up to 2 years).

3) Bargaining power: Equipment manufacturers and upstream parts manufacturers have increased their bargaining power, but they all use value pricing. The rise in product prices mainly depends on the increase in the penetration rate of high-end products.

Downstream exposure: Frontier equipment manufacturers' storage exposure took the lead in upward, and mainland China market exposure gradually normalized

1) Storage exposure: The historical storage exposure of leading equipment manufacturers is relatively high, and has now taken the lead in increasing it. The bank believes that the storage exposure of all major equipment manufacturers is expected to rise.

2) Market exposure in mainland China: Overall, packaging equipment manufacturers > wafer manufacturing equipment manufacturers > test equipment manufacturers; the exposure of leading equipment manufacturers to the mainland China market has declined sharply, while the exposure of packaging and testing equipment manufacturers is basically stable.

Investment advice: Focus on equipment companies that increase share in segments/have greater storage exposure/unique logic.

Risk factors:

Closed loop progress in AI commercialization falls short of expected risk; risk of downstream fab customer capital expenditure falling short of expectations; risk of global macroeconomic fluctuations falling short of expectations; risk of global circulation obstruction and inflation risk due to geopolitical conflicts; risk of further tightening of export control regulations such as the US; increased risk of competition in the semiconductor equipment industry; insufficient progress in technology research and development; risk of loss of core technical personnel and technology leakage.