Recent trading sessions have seen a pullback in global semiconductor stocks, driven by concerns over an overheated AI rally and broader macroeconomic uncertainties, including unresolved Middle East geopolitical tensions and strong US non-farm payroll data reinforcing expectations of Federal Reserve rate hikes.
However, UBS has presented a positive outlook for the global semiconductor industry in a recent research report. The bank forecasts that the industry's channel shipment revenue will surge 118% to $1.62 trillion by 2026, followed by a further 46% increase to $2.38 trillion in 2027.
Key Drivers for Continued Semiconductor Revenue Growth
UBS highlights memory chips as a crucial factor behind the anticipated substantial growth in the global semiconductor market size. The bank projects memory chip revenue to skyrocket 318% to $961 billion by 2026, and then climb an additional 70% to $1.638 trillion in 2027.
The report adds that Agentic Artificial Intelligence (AI) is the key engine driving this demand, not only boosting High Bandwidth Memory (HBM) but also stimulating demand for DDR5/LPDDR5 and NAND flash memory.
Concurrently, demand for server CPUs, including both traditional server CPUs and AI server host node CPUs, is also rising significantly. UBS expects overall CPU revenue to grow 25% to $75 billion in 2026 and 28% to $96 billion in 2027, despite ongoing weakness in the PC market.
Beyond CPUs, UBS also anticipates revenue for CMOS logic chips (excluding memory value) to increase by 43% in 2026 and 8% in 2027, while analog chips and MCUs (Microcontroller Units) are forecast to achieve double-digit percentage growth in both 2026 and 2027.
In short, AI is driving an increasingly broad-based uplift in semiconductor revenues, a trend likely to persist for some time.
Growth Rate to Moderate from Extreme Highs
UBS notes that, based on traditional cyclical indicators, the global semiconductor market may be nearing the peak of its current cycle. The bank forecasts that the industry's 3-month moving average (3MMA) year-on-year revenue growth rate will peak at 135% in October 2026.
While a subsequent slowdown is almost inevitable, the bank still expects the year-on-year revenue growth rate to remain at 30% by December 2027.
The report adds that the 3MMA growth rate excluding memory chips is expected to peak at 35% in September 2026 before declining to 6% by October 2027. This underscores the significant driving role memory chips currently play for the industry.
On the other hand, other leading cyclical indicators remain in a positive state: foundry capacity utilization is expected to improve continuously through Q3 2027; packaging equipment revenue growth is projected to improve through Q4 2027; and the memory industry's operating profit is forecast to improve through Q4 2027.
Upside risks from AI extend beyond AI accelerators and HBM, encompassing CPUs, DRAM, NAND, and related networking equipment and power management demand, all of which could potentially further delay the industry's cyclical turning point.
Inventory Levels Rising but Remaining Manageable
UBS points out that as of the end of the March/April 2026 quarter, the average days of inventory for non-memory semiconductor manufacturers reached 166 days, an increase of 9 days quarter-over-quarter but a decrease of 5 days year-over-year. For OEM manufacturers, the average days of inventory stood at 100 days, up 12 days quarter-over-quarter and up 3 days year-over-year.
Overall, the bank does not see widespread signs of inventory overhang. With production plans for industries more susceptible to memory chip shortages, such as smartphones and PCs, being adjusted earlier in the year, inventory levels are generally considered to be within a manageable range.
Current Downturn Viewed as Temporary
Based on its positive outlook for the global semiconductor industry, UBS believes the recent pullback in semiconductor stocks is likely to be short-lived. The bank maintains a favorable view on the memory segment and sees potential for the Wafer Fabrication Equipment (WFE) segment to catch up relative to memory. It expresses a preference for AI logic chip companies but remains relatively cautious on the analog chip segment.
In the US stock market, UBS's most preferred semiconductor stocks include Applied Materials (NASDAQ: AMAT), Micron Technology (NASDAQ: MU), and Texas Instruments (NASDAQ: TXN). Its least preferred stocks include ON Semiconductor (NASDAQ: ON) and Qualcomm (NASDAQ: QCOM).
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