The AI supply chain may sound straightforward, but it is more complex than you think. Over the next 10 weeks, every Wednesday, we'll break down the key components—who makes them, how they're performing, and where the bottlenecks are hiding—an investor-focused breakdown of what's going on in the industry. |
Week 1 starts at the beginning: semiconductor equipment. |
The process of building an AI chip starts long before GPUs leave the factory. It begins with semiconductor equipment, the specialized machines that enable chip manufacturing. The semiconductor industry is experiencing strong, sustained growth driven by demand for AI infrastructure. |
The Pickaxes and Shovels of the AI Gold Rush |
Think of semiconductor equipment as the pickaxes and shovels of the AI gold rush. Just as miners can't extract gold without proper tools, chipmakers can't produce cutting-edge AI processors without these specialized machines. Currently, demand is unprecedented. |
 | This chart shows how semiconductor equipment spending has surged across all major regions from 2008 to 2024, with Taiwan, China, and South Korea emerging as the dominant drivers of global capacity expansion. |
|
Advanced process capacity for nodes at 7nm and below is projected to surge from 850,000 wafers monthly in 2024 to 1.4 million by 2028. This 69% increase is significant as it represents a giant leap. It is almost as if the industry has moved from powering up every smartphone in North America to covering the entire developed world. |
To understand the story, we simply need to examine the numbers. Equipment sales in the foundry and logic segment reached $64.8 billion in 2025. Meanwhile, test equipment saw a significant 23.2% growth, reaching $9.3 billion. More than just growth, this is to be viewed as an explosive expansion driven by artificial intelligence. |
Market Concentration: Four Companies Control Everything |
Four companies control more than 70% of the global Wafer Fab Equipment (WFE) market: |
ASML: Monopoly on EUV lithography (the technology needed for the most advanced chips) Applied Materials: Leader in deposition and material removal during manufacturing Lam Research: Specialist in etching, crucial for stacking memory chips vertically Tokyo Electron: Essential coating and bonding tools
|
 | Global WFE Market Share (Est. 2024) |
|
This concentration creates both opportunity and risk. When these companies execute, the entire AI supply chain moves forward. When they stumble, everything stalls. |
Who's Winning |
ASML: The Undisputed Champion |
ASML isn't competing—it's playing a different game entirely. Q3 2025 results: |
Net bookings: €5.4 billion EUV system bookings: €3.6 billion Total sales: €7.5 billion Gross margin: 51.6%
|
What makes ASML truly special? By the end of the first half of 2025, they will have shipped 5 High-NA EUV systems. Their latest model delivered 60% higher productivity at roughly 175 wafers per hour. More than just incremental growth, these generational leaps support the next wave of AI chips. |
Hence, the market believes the words of the company's CEO - "AI is going to benefit a larger part of our customer base." For the full year 2025, ASML expects net sales of around €32.5 billion with a 52% gross margin. |
Applied Materials: The Diversification Play |
Applied Materials takes a different approach—focusing on the entire manufacturing process, not just one critical step. |
Q3 2025 performance: |
|
The company's smartness was highlighted in consistently lowering China exposure from 43% to 25% of revenue. While the move offered a hedge against against geopolitical risks the company also did not compromise growth. Roughly expanding at 40% per year, their HBM business strengthen its position in a market environment where AI chips demand ever-more memory bandwidth. |
Lam Research: The Silent Grower |
ASML grabs headlines, but Lam Research is quietly fortifying its market position. |
Q4 2025 results: |
|
Lam maintains its gross margins consistently at around 50% while improving its market position by focusing on advanced packaging and etching technologies essential for HBM production. |
The Headwinds to Watch Out For: |
It's not all smooth sailing. Three major challenges loom: |
Geopolitical Friction: |
ASML expects China's revenue share to drop from 29% to 20% in 2025. Applied Materials anticipates a $600 million revenue hit in 2026 from tightened export controls. These aren't minor adjustments. They're reshaping global semiconductor trade structure in real time.
|
Supply Chain Bottlenecks: |
Here's the irony: China controls roughly 90% of global rare-earth processing capacity. New export restrictions are causing weeks of delay in ASML's EUV tool shipments. The tools needed to reduce dependence on China require materials controlled by China. That's the paradox driving supply chain diversification efforts.
|
Capacity Constraints: |
CoWoS (Chip-on-Wafer-on-Substrate) packaging capacity faces limitations through at least H1 2026. SK Hynix's HBM products are sold out for 2024 and nearly fully booked for 2025. At a certain point, throwing money at capacity doesn't solve the problem. Physical and technical constraints create unavoidable bottlenecks that investment alone can't remove.
|
What's Next? |
Industry estimates project total semiconductor equipment sales rising from $125.5 billion in 2025 to $138.1 billion in 2026. 300mm fab equipment spending is expected to reach $140 billion by 2027. |
 | Industry Outlook and Forecasts 2026-27 |
|
Growth drivers: |
The buildout of AI infrastructure is boosting demand for advanced nodes and packaging. Government incentives (Applied Materials received $200M for an Arizona facility under U.S. policy support) Over 100 new or expanded fabs globally (+10% YoY)
|
What should the investors focus on? Focus on leading indicators, including order backlog growth, net bookings, and fab expansion announcements, to gauge forward demand, exemplified by ASML's €5.4 billion Q3 2025 bookings and Applied Materials' tracking of over 100 new or expanded fabs globally (+10% year-over-year). |
Exposure |
Investors can also opt to invest in this trend by investing in ETFs such as |
VanEck Semiconductor ETF (SMH) iShares Semiconductor ETF (SOXX) iShares MSCI Global Semiconductors ETF (SEMI)
|
Downside Risks |
Downside risks warrant vigilance. It is necessary to keep a close eye on both export controls and geopolitical tensions. These factors have constrained visibility and market access in China, with ASML forecasting significant declines in Chinese orders for 2026 and Applied anticipating a decrease in revenue share. Additionally, uneven order patterns and delayed capital spending challenge the linearity of demand, especially in leading-edge logic segments. |
Next Week |
We'll dive into semiconductor manufacturing and packaging—where the real bottleneck is happening. TSMC, Samsung, Intel, and packaging specialists like ASE and Amkor are racing to solve a problem most people don't even know exists yet. The equipment is ready. The question is whether manufacturing can keep up. |
|
Disclaimer: This material is for informational and educational purposes only. It does not constitute investment advice or an offer to buy or sell any security. Past performance does not guarantee future results. Investors should consult with qualified professionals before making investment decisions. |
|
|
For 22 years, each and every stock Weiss Ratings rated a "Buy" has delivered an extraordinary average return of 303% — and that includes the losers. Our sophisticated algorithms perform millions of real-time calculations daily, analyzing over 53,000 data points per stock. The result? Unmatched accuracy, actionable insights, and unbiased ratings — insights previously accessible only to institutional investors. Now this eerily accurate system is flashing green on a new set of stocks… It's identified three under-the-radar picks that could thrive in 2025 and beyond … And we're giving away their names and ticker symbols — FOR FREE. Click here for the names of our three top stocks to own this year (no purchase necessary). |
|
|
Copyright © 2025 Weiss Ratings. All rights reserved. |
|
No comments:
Post a Comment