Market pessimism is premature! Deutsche Bank: The semiconductor equipment supercycle is not over yet; WFE spending could soar to $270 billion by 2028.

Title context: Market pessimism is premature! Deutsche Bank: The semiconductor equipment supercycle is not over yet; WFE spending could soar to $270 billion by 2028. Text: Deutsche Bank Aktiengesellschaft pointed out in a research report released recently that since July, semiconductor equipment stocks have struggled to boost investor confidence, with share prices falling by an average of 29% from their July highs; the sector has clearly underperformed other industries over the same periodthe broader Philadelphia Semiconductor Index (SOX) fell only 16%, while the S&P 500 rose 3%. Investors and corporate management have sharply contrasting views on the industry outlook. Management is generally optimistic about strong fundamentals and believes the industry may be ushering in one of the strongest semiconductor equipment cycles in history, with its DRIVE including the DRAM shortage, advanced-node wafer capacity expansion, and NAND upgrades. However, investors believe that a considerable portion of these positives is already "on the table." At present, some buy-side institutions have raised their forecasts for global wafer fab equipment (WFE) spending in 2028 to $300 billion, nearly double the 2026 level. But with such a high expectations threshold, many investors are beginning to question whether there are more positive catalysts left for the semiconductor equipment sector, or whether most of the sector's upside has already been captured by the market. Fab expansion is still in its early stages In Deutsche Bank's view, this pessimism among investors is somewhat premature, especially considering that new DRAM capacity coming online in 2026 will be very limited. At present, the bank can already see 8 to 10 major Tier 1 fabs entering the equipment installation stage in 2027, and more fabs will join this ranks in 2028. Similarly, in advanced-node foundry logic chips, a large amount of capacity expected to enter operation is still under construction. Deutsche Bank believes that the more noteworthy question at present should not be whether the positives have already been priced in by the market, but whether the supply ecosystem can support such strong growth. At the same time, however, the bank also acknowledges that earnings expectations for related companies have already been significantly revised upward this year, so these positives have to some extent been reflected in current valuations, especially in buy-side forecasts. 2028 WFE spending forecast raised to $270 billion In this report, Deutsche Bank raised its forecasts for global wafer fab equipment (WFE) spending from 2026 to 2028 to more accurately reflect the timing and scale of new fab construction. This adjustment reflects increased fab project spending by DRAM and foundry customers over the past 90 days, as well as projects being pulled forward. Taken together, Deutsche Bank now expects global wafer fab equipment spending to rise to $154 billion in 2026, $217 billion in 2027, and further to $270 billion in 2028, corresponding to year-over-year growth of 40%, 41%, and 24%, respectively. The bank particularly emphasized that the above forecasts basically do not take into account large-scale price increases. Deutsche Bank pointed out that the risk factors affecting these forecasts will gradually shift from "whether demand exists" to "whether the supply ecosystem can support such strong growth." For example, can sub-suppliers of semiconductor equipment vendors keep up with demand? Which segments will become supply hotspots or bottlenecks? At the same time, the bank expects investors' focus to shift from the scale of the industry's upside to whether such a high level of capital expenditure can be sustained. In other words, the next question the market needs to answer will be: where will capital expenditure go in 2029? As 2026 approaches, investors will become more selective in stock picking It is precisely because of this tension between high expectations and strong fundamental momentum that Deutsche Bank expects semiconductor equipment investors to become more selective in the coming quarters. The bank still believes that industry fundamentals will accelerate further over the next 12 to 18 months, which should reignite the entire semiconductor equipment sector, and therefore maintains a "Buy" rating on most companies under coverage. However, Deutsche Bank also believes that investors' focus will shift further toward companies with margin expansion potential, opportunities to gain market share, or room for company-specific improvement. Top picks consistent with these themes include: among large caps, Lam Research (LRCX.US); among small and mid caps, Onto Innovation (ONTO.US); and among semiconductor equipment suppliers, Entegris, Inc. (ENTG.US).