Investment bank Jefferies Financial Group Inc. (NYSE: JEF) expects the semiconductor equipment market to keep expanding through 2028, even as worries over artificial intelligence (AI) investment, data center construction and memory chip prices weigh on the chip sector, according to a report from Zhitong Finance.
Semiconductor companies and chip equipment makers have grown more optimistic about their business fundamentals while reporting their latest quarterly results. At the same time, however, broader stock market anxiety about future risks is widening the gap between current performance and share price expectations.
The market has been concerned about whether hyperscalers can sustain their capital spending, power supply constraints and delays in data center construction, the financial ties between major AI companies, and elevated memory chip prices. Questions about the return on generative AI investment, and the risks posed by increasingly autonomous AI systems, have also resurfaced.
Jefferies nevertheless expects the continued spread of AI applications to underpin demand for graphics processing units (GPUs), custom chips, central processing units (CPUs), power semiconductors and other components used in data centers. The bank also expects memory chip demand to keep growing.
Long-term supply agreements between semiconductor companies and their customers have improved the visibility of medium-term demand and support equipment makers' expectations for industry growth through 2028. Jefferies forecasts the wafer fabrication equipment market will reach up to $200 billion by 2027 and about $220 billion in 2028, figures that may fall short of investor expectations of $200 billion and $250 billion respectively. Even so, the market should still post strong growth and continue expanding through 2028.
On individual stocks, Jefferies rates Applied Materials (NASDAQ: AMAT), Lam Research (NASDAQ: LRCX), NVIDIA (NASDAQ: NVDA), CoreWeave (NASDAQ: CRWV), Meta (NASDAQ: META), Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN) as "Buy." The bank rates ASML (NASDAQ: ASML) and SCREEN Holdings (OTC: DINRF) as "Hold."
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