To The Moon

U.S. stock semiconductor equipments companies rose sharply this week, among which, $NVIDIA Corp(NVDA)$ 上涨14.52%、$ASML Holding NV(ASML)$ rose 8.49%、$Applied Materials(AMAT)$ increased 9.92% before Friday.

From the news side, the U.S. Senate passed the $52 billion chip bill with a 64-34 vote in a preliminary vote on Tuesday, which plans to provide $52 billion for domestic chip manufacturing incentives and research investments with a 25% investment tax credit for semiconductor manufacturing. 

Some senators are predicting a final yes vote could come as early as next week after House of Representatives‘s vote and need be signed by the president.

At present, the market expectations are relatively optimistic, and it does not rule out that support measures such as tax incentives will be introduced for chip design companies in the future.

Before the bill passed, the husband of U.S. House Speaker Nancy Pelosi bought $5 million worth of $NVIDIA Corp(NVDA)$ stock.

There are two backgrounds under of this bill:

• One is that the U.S. share of global semiconductor manufacturing fell from 37% in 1990 to 12% today;
• Another is the supply chain crisis caused by the Pandemic, which highlights the importance of semiconductor manufacturing capabilities.

Before on 8th February 2022, the EU launched its " Chips Act", planning to invest 43 billion euros (about 49 billion US dollars) in a new generation of chip factories to increase the EU's share of global chip production, Increase the EU's chip production capacity from 10% of the world's current share to 20% in 2030.

In the lastest Q2 quarterly report, the lithography machine giant $ASML Holding NV(ASML)$ CEO Peter Wennink Bluntly stated:

"that the current geopolitical competition is fierce, and countries are pursuing the sovereignty of semiconductor technology, launching various investment and subsidy plans, and the long-term demand for lithography machines is very high and healthy!"

Based on the above information, the global semiconductor manufacturing competition may have begun, and related concept stocks will usher in long-term benefits. Among them, the most beneficial is semiconductor equipment companies!

Three Major Semiconductor Equipments

According to $GLOBALFOUNDRIES Inc.(GFS)$ fab investment data, to build a new fab, 80% of the total investment will be used to purchase equipment, of which 80% will be wafer manufacturing equipment and 20% will be used for packaging and testing and others. Based on this calculation, wafer fabrication equipment accounts for about 64% of the total investment in the fab.

In wafer manufacturing equipment, there are "three major items", namely lithography machine, etching and thin film deposition, accounting for 23%, 30% and 25% of equipment investment respectively.

Top 10 Rated Semiconductor Equipment Suppliers of 2022 by Tech Sights. 

Source:https://www.techinsights.com/

1. Lithography Machine Company: $ASML Holding NV(ASML)$

The lithography machine market is currently monopolized by $(ASML)$, occupying 90% of the market share. The most advanced EUV lithography machine is an exclusive product in the world. At present, almost no competitors can launch competing products.

2. Etching Machines Manufacturers Suppliers: $Lam Research(LRCX)$, Tokyo Electron Limited, $Applied Materials(AMAT)$

In addition to lithography machines, etching equipment accounts for the largest proportion. At present, the global market is dominated by three oligopolists: $Lam Research(LRCX)$,Tokyo Electron Limited, $Applied Materials(AMAT)$. Among them, Lam Research has the strongest research technology and the most comprehensive product coverage, accounting for 46.7% of the market share; Tokyo Electron and Applied Materials account for 26.6% and 16.7% respectively.

Thin film deposition is divided into chemical vapor deposition (CVD) and physical vapor deposition (PVD). Among them, the CVD market is dominated by Applied Materials, Fanlin Semiconductor and Tokyo Electronics, and the PVD market is dominated by Applied Materials.

3、Measuring Instruments Manufacturers-$KLA-Tencor(KLAC)$

In addition to above“ three major items”, KLA-Tencor has an absolute advantage in measurement, with a market share of over 50%. It is also a major semiconductor equipment manufacturer worthy of attention.

$Applied Materials(AMAT)$ 's revenue in 2022 is expected to be US$25.36 billion, a year-on-year growth rate of 10%, the net profit is estimated to be US$6.64 billion, and the net profit margin is 26.2%.

Data from Bloomberg

Looking at the price-earnings ratio, $Applied Materials (AMAT)$ is currently trading at a 10-year low.

Data from Bloomberg

Below are $Lam Research(LRCX)$ recent financial report:

Data from Bloomberg

$Lam Research(LRCX)$ 's price-earnings ratio also at a 10-year low.

Data from Bloomberg

$KLA-Tencor(KLAC)$‘s recent finacial report:

Data from Bloomberg

$KLA-Tencor(KLAC)$'s price-earnings ratio valuation has been at a pivotal position in the past 10 years:

Data from Bloomberg

Overall:

$ASML Holding NV(ASML)$ , $Applied Materials(AMAT)$ ,$Lam Research(LRCX)$ , and$KLA-Tencor(KLAC)$ are all semiconductor equipment factories, and their overall trends are relatively similar. From the perspective of performance growth, the semiconductor industry will still be relatively prosperous in 2022, but it is expected to be affected by the economic recession in 2023, or Usher in the decline cycle of semiconductors.

As for $ASML Holding NV(ASML)$ , due to its absolute monopoly in its competitive position and its overall stronger ability to resist economic cycles, the company expects to continue growing in 2023. The average annual compound revenue growth rate from 2020 to 2030 is expected to be around 11%. Since there is still room for improvement in profitability, it is expected that the growth rate of net profit will be higher than that of revenue.

However, between $Applied Materials(AMAT)$ and $Lam Research(LRCX)$ , there is a competitive relationship in etching and thin film deposition equipment, and the overall valuation and the ability to be affected by economic fluctuations are poor.

Judging from the comprehensive valuation and performance growth rate, the current semiconductor equipment factories are worthy of attention, and the big opportunity may be when the economic recession sends a clear signal.

Finally, I remind everyone that the semiconductor industry is a cyclical industry. For a cyclical industry, the best buying points appear when performance declines.

Combined with the chip manufacturing support plan in Europe and the United States and the expansion of the application scope of the semiconductor application field in the context of the Internet of Everything, the prospects of the entire industry are promising and worthy of attention.