Market pessimism is premature! Deutsche Bank: The semiconductor equipment super cycle is not over yet, and WFE spending may soar to $270 billion by 2028

According to Zhitong Finance APP, Deutsche Bank noted in a recent research report that since July, semiconductor equipment stocks have struggled to boost investor confidence, with share prices falling an average of 29% from their July highs. This sector has significantly underperformed other industries during the same period—the broader Philadelphia Semiconductor Index (SOX) fell only 16%, while the S&P 500 Index rose 3%.

There is a stark contrast between investors’ views and corporate management’s outlook on the industry. Management teams are generally optimistic about the strong fundamentals and believe the industry may be entering one of the strongest semiconductor equipment cycles in history, driven by factors such as DRAM shortages, advanced process wafer capacity expansion, and NAND upgrades.

However, investors believe that much of the positive news is already “priced in.” Currently, some buy-side institutions expect global wafer fab equipment (WFE) spending to hit $300 billion by 2028—almost double the 2026 level. But with such high expectations, many investors are beginning to question whether there are still further positive catalysts for the semiconductor equipment sector, or if most of the sector’s upside has already been realized by the market.

Wafer Fab Expansion Still in Early Stages

From Deutsche Bank’s perspective, this pessimism may be somewhat premature, especially considering that the new DRAM capacity coming online by 2026 will be very limited. The bank observes that 8 to 10 major Tier 1 fabs are set to enter the equipment installation phase in 2027, with even more fabs joining in 2028. Similarly, for advanced process foundry logic chips, much of the anticipated capacity is still under construction.

Deutsche Bank believes that the more relevant question is not whether the positive news has been priced in, but whether the supply ecosystem can support such robust growth. At the same time, the bank acknowledges that earnings expectations for related companies have been significantly revised upward this year, so some of this optimism is already reflected in current valuations, especially in buy-side forecasts.

2028 WFE Spending Forecast Raised to $270 Billion

In this report, Deutsche Bank raised its expectations for global wafer fab equipment (WFE) spending from 2026 to 2028 to more accurately reflect the timeline and scale of new fab construction. This revision reflects increased spending by DRAM and foundry customers on fab projects over the past 90 days, with some projects being accelerated.

Overall, Deutsche Bank now expects global wafer fab equipment spending to rise to $154 billion in 2026, $217 billion in 2027, and $270 billion in 2028, corresponding to year-over-year increases of 40%, 41%, and 24%, respectively. The bank particularly emphasizes that these forecasts largely do not factor in mass price hikes.

Deutsche Bank points out that the key risk factors for these forecasts are shifting from “Is there sufficient demand?” to “Can the supply ecosystem support such robust growth?” For example, can secondary suppliers to semiconductor equipment vendors keep up with demand? Which segments could become supply hotspots or bottlenecks?

At the same time, the bank expects that investors’ focus will shift from the scale of the industry’s upside potential to whether this high level of capital expenditure can be sustained. In other words, the market will next need to answer: where will capital spending go in 2029?

As 2026 Nears Its End, Investors Will Become More Selective

Because of this tension between high expectations and strong fundamental momentum, Deutsche Bank expects semiconductor equipment investors to become more discerning over the coming quarters. The bank still believes that sector fundamentals will accelerate in the next 12 to 18 months, which should re-energize the overall semiconductor equipment sector, so it maintains a “Buy” rating on most covered companies.

However, Deutsche Bank also believes that investors will increasingly focus on companies with margin expansion potential, opportunities for market share gains, or room for internal improvement. Leading picks that fit these themes include: Lam Research (LRCX.US) among large caps, Onto Innovation (ONTO.US) among small to mid caps, and Entegris (ENTG.US) among semiconductor equipment suppliers.