The chip sector in Asia has been experiencing a noteworthy shift, particularly following a significant rally by a leading AI and chipmaker company over the past year. Despite this upward trend, companies further down the semiconductor supply chain, including those that supply chipmaking equipment, materials, and chemicals, have lagged behind their global counterparts in recent months. However, there remains substantial potential for growth.
Shares of key chipmaking equipment manufacturers have seen declines recently, with notable examples experiencing a drop since early April. Similarly, companies specializing in chip testing and measurement machinery have faced downturns, with some shares falling significantly since their highs in March. The same trend applies to companies producing wafer cleaning and etching materials.
One contributing factor to these declines is the high earnings expectations set for chip-related companies. As several firms failed to meet these optimistic forecasts in the March quarter, a subsequent sell-off occurred. Additionally, steep valuations have played a role; rapid gains prior to the sell-off pushed some stocks to trade at significant premiums compared to global peers, far exceeding their valuations from early last year.
Despite the recent setbacks, long-term demand for chipmaking equipment, semiconductor materials, and testing devices is expected to remain strong. This is driven by growing capital investment in servers worldwide, indicating a bright future for these segments of the supply chain.
Companies involved in producing silicon wafers and chemicals used in chip manufacturing and testing often receive less attention compared to more high-profile AI chip designers. However, these suppliers benefit from limited competition. For instance, a small number of local firms dominate the global supply of photoresist, a crucial material in chip manufacturing. This market dominance helps maintain healthy profit margins and provides a buffer against cyclical fluctuations.
Overall, while short-term challenges exist, the long-term outlook for Japan’s chip supply chain stocks remains positive. As capital investment in technology infrastructure continues to grow, these companies are well-positioned to benefit from sustained demand for their products and services.
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