TL;DR
· According to market reports, Citigroup expects the global WFE bull market scenario to reach $250 billion by 2028.
· TSMC, Samsung, and Intel are expected to account for 55% of the 2025 global WFE spending, with earnings guidance determining upside potential.
· Equipment stocks' performance will still depend on the continuity of AI demand, Samsung's investment execution, and Intel's foundry progress.

TSMC, Intel, and Samsung are set to sequentially disclose their second-quarter results in mid to late July, marking a capital spending expectation checkpoint for semiconductor equipment stocks. According to market reports, Citigroup remains bullish on wafer fab equipment (WFE) pre-earnings season, believing that AI/HPC demand is driving up investments in advanced processes, memory, and foundry. For investors, WFE, which represents wafer fabrication equipment spending, covering key equipment purchases such as lithography, etching, deposition, and testing, directly impacts orders and revenue for equipment companies like Applied Materials, Lam Research, and Teradyne.

Focus of Equipment Cycle Shifts to Latter Two Years from 2026

The previous surge in semiconductor equipment stocks mainly stemmed from investment expectations in AI servers, advanced packaging, HBM, and advanced logic processes. The current market inquiry revolves around whether capital expenditure can be raised beyond 2026, extending the upcycle into 2027 and 2028.

As per market reports, Citigroup's WFE bull market scenario indicates approximately $1.45 trillion in 2026, around $2 trillion in 2027, and about $2.5 trillion in 2028. Brokerage reports also indicate that TSMC, Samsung, and Intel together are expected to account for 55% of the 2025 global WFE spending. If these three companies maintain or increase their medium- to long-term capital spending, there is room for the equipment cycle to continue its upswing.

The upcoming earnings releases will provide more direct clues. TSMC will announce earnings on July 16, Intel will report results after market close on July 23, and Samsung has already issued its Q2 earnings guidance on July 7 and will hold an earnings call on July 30 at 10:00 KST. The market will not only focus on quarterly revenue and profit but also on capital expenditure guidance, advanced process demand, storage investment pace, and management's stance on AI demand over the next three years.

The transmission chain of equipment companies is relatively clear. As fabs increase capital spending, equipment firms' orders and shipments will benefit initially. If demand remains strong, equipment manufacturers may also improve margins through product mix adjustments and capacity utilization enhancements. The equipment-related companies mentioned in Citigroup's report include Applied Materials, Lam Research, Teradyne, and AEIS, but the resilience of these stocks still hinges on customer procurement dynamics.

TSMC Remains the Stronghold, 2027 Assumption Significantly Above Market Consensus

TSMC continues to be the key player in this round of AI capital expenditure cycle. During the April earnings call, TSMC confirmed a 2026 capital expenditure guidance of $52 billion to $56 billion and indicated a tendency towards the high end of the range. The market expects the company to likely maintain its 2026 guidance in the upcoming earnings report and to continue emphasizing advanced processes and packaging demand.

The focus shifts to the next two years. Citigroup's model shows TSMC's 2027 capital expenditure at $75 billion and 2028 at $80 billion, corresponding to year-over-year growth rates of 36% and 7%, respectively. This assumption is above the market consensus, especially with a more significant gap in 2027.

The core support for this projection is the AI/HPC demand continuing to drive the expansion of advanced processes. TSMC handles AI chip demands from companies like NVIDIA, AMD, Broadcom, among others, and also benefits from advanced packaging, CoWoS, and higher-end process node migration. As long as AI chip orders remain strong, TSMC is motivated to continue procuring more equipment for both front-end and back-end processes.

However, high capital expenditure does not automatically mean the equipment cycle is secured. Whether 2027 and 2028 can reach the optimistic model depends on the sustainability of AI orders, the pace of customer in-house chip development, easing bottlenecks in advanced packaging, and whether equipment delivery cycles can keep up.

Samsung and Intel Bring Incremental Growth but Also Uncertainty

If TSMC provides the foundation of the equipment cycle, Samsung and Intel determine the upside.

In the April earnings call, Samsung stated that AI demand will drive a significant year-over-year increase in capital expenditure. Citigroup's model shows that Samsung Semiconductor's capital expenditure will continue to grow at a high rate from 2026 to 2028. This involves two main aspects: HBM and high-end DRAM demand driving investment in memory, while advanced logic and foundry businesses will determine if Samsung can continue to catch up with TSMC in higher-end process nodes.

Samsung's long-term investment plan also expands the imagination for equipment demand. Public sources have differing specifics on this, with Samsung press releases and media coverage involving different scopes such as the group's domestic total investment, Samsung Electronics' future business plans, semiconductor cluster investments, etc. The more conservative estimate is that Samsung's future semiconductor-related Korean investments will be at least around 200 trillion Korean won over more than ten years. This long-term plan spans multiple years, and how much of this can be converted into equipment purchases in the short term will depend on specific fab construction, equipment installation, and capacity ramp-up timelines.

Intel's situation is more complex. In the first-quarter earnings call, the company adjusted its 2026 capital expenditure guidance from "flat to down" to "flat" and stated that tool and equipment-related expenses are expected to increase by about 25% year-over-year. In Citigroup's model, Intel still has upward assumptions for 2027 and 2028 capital expenditures, with more elasticity in 2028.

Can Intel deliver on this increment? The key lies in the foundry business. The 18A process validation, 14A customer decisions, and potential large customer collaborations will all impact the intensity of future investments. If the progress of advanced process node customers is below expectations, capital expenditure is unlikely to be released as per the optimistic scenario. If there is substantial progress in the foundry transformation, Intel will become a significant increment source for global WFE.

Micron Validates Storage Demand but Cannot Replace the Big Three Guidance

Storage fabs' capital expenditures are also providing validation for the equipment cycle. Micron has raised its FY2026 capital expenditure guidance to around $27 billion. The company has also stated that the FY2027 quarterly capital expenditure level is expected to be higher than the level in FY4Q26 by about $10 billion. If this quarterly level continues, FY2027 full-year capital expenditure could exceed $40 billion.

This indicates that the HBM, high-end DRAM, and storage demand brought by AI servers is not just a story on the logic process side. Storage expansion will also drive up equipment procurement, especially benefiting deposition, etch, test, and packaging-related processes. It has been reported that Micron's long-term investment plan in the U.S. has also been raised to over $250 billion, with the time frame extending to around 2035.

However, Micron is more of corroborative evidence of storage demand and cannot replace the guidance of TSMC, Samsung, and Intel. The three companies together account for about 55% of the 2025 global WFE spending. What truly determines the height of the equipment cycle is still their statements on capital expenditure from 2026 to 2028 over the next few quarters.

$250 Billion Assumption Stuck After 2027

The biggest discrepancy in this earnings preview is that Citigroup's assumptions for 2027 and 2028 are significantly more optimistic than the market. The increase in 2026 is relatively easy to understand as AI demand has already been reflected in orders and expansions. Beyond 2027, capital expenditure continues to increase significantly, requiring multiple conditions to be fulfilled simultaneously.

The AI/HPC demand needs to remain strong and not just be short-term concentrated purchases by cloud providers. TSMC's advanced process and advanced packaging expansions need to continue to be supported by customer orders. Samsung's large-scale long-term investment plan must translate into specific equipment expenditures rather than just staying at fab construction and long-term planning. Intel's foundry business must also prove that the 18A and 14A nodes have sufficient customer and production prospects.

Equipment delivery cycles, the macro environment, and semiconductor cycle fluctuations will also affect actual spending. Capital expenditure plans can be revised upwards, but they may also be delayed due to changing customer demands, decreased capacity utilization, or financing pressures.

The saga of Equipment Stocks still revolves around the three major chipmakers. If earnings reports continue to signal robust capital expenditure, the global WFE bull market scenario will receive further support. However, if management takes a cautious stance for 2027 and 2028, the market's expectations for $250 billion in equipment spending will be discounted. The current point of contention is not whether AI capital expenditure exists but whether this expansion cycle can extend beyond 2026.

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