Deutsche Bank noted in a research report released recently 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 clearly underperformed other industries over the same period 鈥?the broader Philadelphia Semiconductor Index (SOX) declined only 16%, while the S&P 500 rose 3%.

There is a sharp contrast between how investors and corporate management view the industry outlook. Management is broadly optimistic about strong fundamentals, believing the industry may be entering one of the strongest semiconductor equipment cycles in history, driven by DRAM shortages, advanced-node wafer capacity expansion, and NAND upgrades.

However, investors believe a considerable portion of these positives are already "on the table."

Currently, some buy-side institutions have raised their expectations for global wafer fab equipment (WFE) spending in 2028 to $300 billion, nearly double the 2026 level. But with such a high expectation threshold, many investors are beginning to question whether there are more positive catalysts for the semiconductor equipment sector, or whether most of the upside has already been captured by the market.

Fab Expansion Still in Early Stages

In Deutsche Bank's view, this pessimism among investors is somewhat premature, especially considering that new DRAM capacity coming online in 2026 will be very limited.

At present, the bank can already see 8 to 10 major Tier 1 fabs entering the equipment installation phase in 2027, with more fabs joining in 2028.

Similarly, in advanced-node foundry logic chips, a large amount of capacity expected to come into operation is still in the construction phase.

Deutsche Bank believes the more noteworthy question now should not be whether the positives have already been priced in, but whether the supply ecosystem can support such strong growth.

At the same time, the bank also acknowledges that earnings expectations for related companies have been significantly revised upward this year, so these positives have already been reflected to some extent in current valuations, especially in buy-side forecasts.

2028 WFE Spending Forecast Raised to $270 Billion

In this report, Deutsche Bank raised its forecasts for global wafer fab equipment (WFE) spending from 2026 to 2028 to more accurately reflect the timing and scale of new fab construction.

This adjustment reflects increased fab project spending by DRAM and foundry customers over the past 90 days, as well as 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 further to $270 billion in 2028, corresponding to year-over-year growth of 40%, 41%, and 24%, respectively.

The bank particularly emphasized that these forecasts essentially do not take into account large-scale price increase activities.

Deutsche Bank pointed out that the risk factors affecting these forecasts will gradually shift from "whether demand exists" to "whether the supply ecosystem can support such strong growth."

For example, can sub-suppliers of semiconductor equipment vendors keep up with demand? Which segments will become supply hotspots or bottlenecks?

At the same time, the bank expects investor focus will also shift from the scale of industry upside to whether such high levels of capital expenditure can be sustained.

In other words, the next question the market needs to answer will be: where will capital expenditure go in 2029?

As 2026 Approaches, Investors Will Be More Selective in Stock Picking

Precisely because of this tension between high expectations and strong fundamental momentum, Deutsche Bank expects semiconductor equipment investors to become more selective in the coming quarters.

The bank still believes industry fundamentals will accelerate further over the next 12 to 18 months, which should reignite the entire semiconductor equipment sector, so it maintains a "Buy" rating on most companies under coverage.

However, Deutsche Bank also believes investor focus will shift further toward companies with margin expansion potential, market share gain opportunities, or room for company-specific improvement.

Top picks aligned with these themes include Lam Research (LRCX.US) among large caps, Onto Innovation (ONTO.US) among small and mid caps, and Entegris (ENTG.US) among semiconductor equipment suppliers.