Morgan Stanley: SPE sector declines to fund incremental WFE; market awaits AI capital return certainty

TechFlow reports, according to Toward Research, Morgan Stanley released a Semiconductor Capital Equipment (SPE) industry report on September 7, outlining seven core debates. The bank noted that WFE (Wafer Fabrication Equipment) forecasts continue to be revised upward, but the market no longer accepts the "more capacity expansion" narrative; investors need clearer evidence of AI capital expenditure returns before paying for incremental demand. Morgan Stanley highlights AEIS, MKS, and ONTO as stocks priced by the market for a peak in 2027, and maintains an Equal Weight rating for the SPE sector.

Morgan Stanley has raised its 2026 and 2027 WFE forecasts by 26% and 54% respectively since December last year. The 2026 DRAM WFE forecast was increased by 47% to $53 billion, while advanced logic WFE is projected to grow by 72% in 2026 and 50% in 2027. However, equipment stocks have not kept pace. Morgan Stanley believes the core contradiction lies in investor discomfort with further upward revisions to WFE guidance. Buy-side consensus expects 2027 WFE to reach approximately $230 billion, whereas Morgan Stanley forecasts $223 billion, indicating limited upside. Each GW of compute capacity corresponds to roughly $7 billion in WFE demand, with new incremental volume likely driven by Terafabs and the recovery in mature process nodes.