JPMorgan: Semiconductor Q2 Demand Beats Expectations, Price Hikes Spreading from Memory to Equipment and Materials
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J.P. Morgan's August 17 report finds global chipmakers' Q2 demand broadly exceeded expectations, with pricing gains spreading from memory chips into equipment and materials — signaling that earnings upside in semiconductor equipment is being systematically underpriced.
Chip giants are ramping capex — where is the money going?
TSMC raised its 2026 capex plan from $52–56 billion to $60–64 billion, a midpoint increase of roughly 52% year-on-year, with 70%–80% directed at leading-edge process technology. This means → TSMC is concentrating its biggest bet on the most advanced nodes, and equipment demand will spike accordingly.
Intel lifted 2026 capex to $20 billion, with equipment spending up 40% year-on-year, focused on U.S.-based front-end tools. Its 18A node targets mass production by late 2026; 14A is slated for 2028.
SK Hynix plans KRW 40 trillion in spending (up 45% YoY) and accelerated its M15X production ramp. Samsung Foundry's Taylor Fab 1 will begin a 2 nm capacity ramp in 2026.
In plain terms = all three major camps are scaling up at once, and equipment makers' order books are thickening at a pace unseen in years.
What gives equipment makers the pricing power to raise prices?
Wafer fab equipment (WFE) market-size estimates have been revised up across the board: Tokyo Electron now sees 2027 WFE at no less than $190 billion; Lam Research and KLA both raised their 2026 estimates to the low $150 billion range.
Price hikes are lifting margins directly. Tokyo Electron expects gross margin to reach 50% by early FY2027 (Q2 was 47%); Lam Research hit 52% in Q2, targeting 55%; Applied Materials' semiconductor-systems division already exceeds 55%.
Lam Research noted that estimated WFE demand per $100 billion of AI investment rose from roughly $8 billion to $9–10 billion. This means → every additional dollar spent on AI infrastructure now pulls 12%–25% more equipment demand than estimated three months ago.
Why is indium phosphide suddenly so scarce?
Indium phosphide (InP) — a substrate material used in optical communications and high-speed chips — faces a supply-demand gap exceeding 30%. Lumentum and Coherent have both signed long-term agreements with AXT to lock in supply.
Capacity expansion is running at multiples: JX Advanced Metals plans to increase InP substrate capacity 7–10× by 2030; AXT targets a 3× expansion by end-2026 (quarterly revenue hitting $60 million), then more than 2× again by end-2027 (exceeding $130 million).
Coherent is shifting to 6-inch substrates, which quadruple output and halve costs compared with 3-inch wafers. This reflects suppliers attacking capacity and cost simultaneously by going bigger.
What do the memory long-term agreements actually lock in?
Samsung has finalized 5 long-term agreements with data-center customers, with another 5 in final negotiations, structured as 5-year rolling contracts with substantial prepayments expected. SK Hynix has signed 10 contracts on similar 5-year, prepaid terms.
SanDisk has signed 8 contracts (3 with U.S. hyperscalers), averaging 4 years, covering 50% of its FY2027 bit demand and roughly two-thirds of FY2028.
SanDisk management disclosed that even at the floor price under its variable-pricing structures, gross margins remain around 80%. In plain terms = the worst-case price still delivers extremely high profitability — and that is the core reason J.P. Morgan believes the market is undervaluing the memory sector.
What is J.P. Morgan's central call?
This pricing cycle is no longer exclusive to memory chipmakers — equipment and materials suppliers are steadily lifting margins through price increases. This means → the breadth of margin expansion is wider than the market has priced in.
J.P. Morgan argues that earnings upside in semiconductor equipment is being systematically underestimated. Rising market-size estimates plus pricing-driven margin expansion create a double lever.
The next key validation point: as more memory LTA details emerge, whether the market accepts the logic that "floor prices still yield ~80% gross margins" will determine if the memory sector's valuation re-rating truly materializes.
Content is for reference only, not financial advice.