Semiconductor Equipment Demand: How to Read Capex Cycles Without Getting Fooled by Headlines

“Semiconductor equipment demand does not move on headlines; it moves on utilization, technology transitions, and long-term capacity needs.”

Semiconductor is one of the important resources for various industries. Semiconductor chips are building block for technological development and innovation in AI, smartphones, EVs, cloud computing, automotive, healthcare and energy industries. The demand for semiconductor equipment is driving with the adoption of AI in various industries, because both hardware manufacturing and software compilation requires semiconductors. The semiconductor industries face both short term volatility and long term volatility driven by geopolitics pressure, shift in consumer demands, transition in technology and global investment headlines. The semiconductor equipment market is growing rapidly, driven by investments for domestic production from local governments, geopolitical shifts and adoption of AI in various sectors.

What is Capex Cycle in Semiconductors industry? How Semiconductor Capex Cycles Actually Work? 

Capex Cycles: The semiconductor industry is one of the most capital-intensive industries with high upfront investments and spending. Capex cycle is the inherently cyclical rise and fall of investment in semiconductor industry.

• Nature: The nature of this capex cycle is often predictable by analyzing the shift in demand of consumer, technology and global economics.
• Impact: The rise and fall of investment and spending on semiconductor sector impacts other industries by determining revenue stream of manufacturing sector.

Expansion Phase: The expansion phase in capex cycle generally driven by surge in demand for semiconductor chips and other equipment from automotive, EV, smartphones, Artificial Intelligence and cloud computing.

• Action: The growing demand for semiconductor equipment results investment in new fabrication plants for manufacturing. Investment for new fabrication plants are very critical, because they determine global chip supply capacity.
• Outcome: The surge in demand for semiconductor drives and growth of equipment suppliers and strong industry optimism.

Correction Phase: The correction phase or downturns in capex cycle is generally influence by slow demand and when supply catches up with demand or inventory builds up. Generally, news headlines present this correction phase as “Industry crash,” despite it being a normal cycle reset

• Action: Projects in correction phase get delayed due to delay or cut new investments and a decline in utilization rates. News headlines often exaggerate this correction phase as “crash,” despite it being a normal cycle reset.
• Outcome: The correction phase is not necessarily a sign for industry collapse or crash; it is a normal adjustment in capex cycle. Downturns often signal preparation for the next wave of innovation.

Thus, both expansion and correction phase of capex cycle in semiconductor industry are normal for market growth. They reflect shifts in consumer demands and technology, not reflect industry failure. Analyzing capex cycle correctly can explains the next investment wave, rather relying on news headlines.

What Is Difference Between Announced Capex and Real Spending: Why Record Capex Plans Don’t Always Mean Record Investments?

What is difference between Announced Capex vs. Real Spending?

• Announced Capex: The announced capex refers to announced capital expenditure in the form of public statements in press releases. These announcements often highlight or promote “record investments” to signal confidence.
• Real Spending: Real spending is different from announced capital expenditure; it depends on market condition and actual purchase orders placed with equipment suppliers.

Why Record Capex Plans Don’t Always Mean Record Investments?

Headlines about capital expenditure often highlight total planned capex, including future years and tentative budgets that are not yet spent. This do not explain execution costs and actual spending in the same period. Generally real spending differs from headline capex due to budgeting cycles, limitation in supply chain and fab construction. Governments across countries promote bold announcement to attract subsidies but actual spending lags by years compared to announced plans.

Thus, it is important to understand that announced capital expenditure may be aspirational and promote investments in semiconductor industry but real spending depends on market conditions and financing. So, analyzing real spending can reflect better insights than understanding capex cycle from news headlines.

What Are Key Drivers of Semiconductor Equipment Demand?

1. Evolving Technologies are Driving of Semiconductor Equipment Demand.

• AI & Generative AI: The adoption of artificial intelligence and generative AI across industries are driving demand of advance Graphics Processing Unit (GPU), Neural Processing Unit (NPU) and Tensor Processing Unit (TPU) for training hardware and software models. Semiconductor equipment is a critical resource to manufacture them.
• Advanced Nodes (3nm, 2nm): The size of transistor are shrinking with increasing its capacity, which is driving demand for EUV lithography, atomic‑level deposition, and precision etching equipment.
• High‑Performance Computing (HPC): Computer are becoming more powerful with improving its performance and capacity, which is driving demand for ultra dense chips. Advance computers and cloud server are driving the adoption of semiconductor equipment for ultra dense chips.
• New Materials: The adoption of power electronics and electric vehicle is increased demands for chip made with new resource material such as silicon carbide (SiC) and gallium nitride (GaN) Specialized deposition and etching tools are required to manufacture these devices.

2. Global Investments in Fabrication Plant Fueling Semiconductor Equipment Demand.

• Global Fab Race: The global competition for semiconductor fabrication plants one of the major drivers of semiconductor equipment demand. Governments from United States, European countries, China, and India are prioritizing supply chain resilience by investing billions to build new semiconductor fabrication plants.
• Government Incentives: Governments across countries are supporting semiconductor industry by providing different incentive and subsidiary. Programs like the CHIPS Act from United States, EU Chips Act from Europe, and Semiconductor Mission from Indian governments are accelerate demand for semiconductor fabrication plants.

3. Rising Market Applications and End‑Market Demand are Creating Semiconductor Equipment Demand

• Smartphones: The increasing demand for semiconductor chips from smartphone manufacturer holds one of the largest positions. Smartphones manufacturers are fueling demand for mid-range semiconductor equipment. 
• Data Centers & AI Servers: The growing need of data centers and AI server are driving the requirement of powerful chips, which is further fueling semiconductor equipment.
• Electric Vehicles (EVs): The increasing adoption of electric vehicle are driving demand for semiconductors, sensors and Artificial intelligence (AI) enabled chips to automate driving and improving capacity.
• Healthcare & Industrial IoT: Healthcare and pharmaceutical industry are driving demand for high performance semiconductor chips with diverse and versatile capacity.

Historical Recovery Patterns After Downturns in Semiconductor Equipment Demand: Why Temporary Slowdowns Don’t Signal Collapse?

Historical Patterns of Recovery

The demand for semiconductor industry rises and falls with transition of technology and geopolitics. The semiconductor industry cycles from expansion, downturn, recovery, and renewed growth phases over multi-year periods.

Example: Based on data provided by the World Semiconductor Trade Statistics (“WSTS”), global semiconductor revenue rose by 23.2% from US$134.7 billion in 3Q 2023 to US$166.0 billion in 3Q 2024.

What are the reasons behind slowdowns?

• Advance Inventory Management: When Manufacturer produce more chips than the market need, oversupply of product cause decline in investment for short time period. 
• Recession: Both consumer demand and government investment for electronics declines during economic recessions, leading slowdown in semiconductor equipment demand.
• Geopolitical shifts: The shift in geopolitical relations like supply chain disruptions and trade restrictions can cause slowdown in semiconductor equipment sales.

Why Temporary Slowdowns Don’t Signal Collapse?

• Long-term megatrends: Adoption of artificial intelligence (AI), Continuation and innovation in electrification, 5G, and IoT ensure the demand and investment in semiconductor equipment chips remain essential.
• Diversified demand: The semiconductor equipment demand comes from diverse industries such as smartphones, electric vehicles (EV), healthcare, industrial automation, and cloud computing.
• Continuous innovation: Technological advancement and continuous innovation for advanced nodes (3nm, 2nm) and new materials (SiC, GaN) keeps fabs investing in equipment, even during downturns.

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Decoding Semiconductor Industry Health: Core Indicators to Watch Instead of Headlines:

Decoding semiconductor equipment industry based on just news or investment headlines could be misleading. Headlines often exaggerate investments or volatility in semiconductor industry. Sometimes these headlines present insights by focusing short term results and exaggerate market condition and shows quarterly revenue drop as “collapsing or crash” situation. It is important to understand that core indicator to decode semiconductor capex recovery cycle accurately.

Core Indicators to Read Semiconductor Capex Cycles Instead of Headlines

• Semiconductor Equipment Billings: Reading semiconductor equipment billings and backlog of fabrication plants can give more correct insights about actual revenue and their investments in new tools. If the billing is rising means there is demand for semiconductor equipment in future. Billing and backlogs explain actual spending of fabrication plants and future trends of industry.
• Shipments of Raw Materials: Reading trend of important raw materials like silicon wafers is another way to analyze about semiconductor industry health. Growth in production capacity requires high raw material supply.
• Inventory Levels: Analyzing dynamic random access memory (DRAM) and NAND flash memory can predict capex cycles of semiconductor demand. Normalized inventory supply indicates recovery phase of the industry but over storage or oversupply signals about downturn and low decline of consumer demand.
• Fab Utilization Rates: Checking utilization rates of fabrication plants explains capex cycles of semiconductor demand. Fabrication plants with full capacity shows High utilization and low utilization indicates temporary slowdown.

These are some of the core indicators of semiconductor health and show whether fabrication plants are preparing for growth or cutting back. Decoding semiconductor capex cycles from headlines could be misleading.

Global Semiconductor Market Share by Region

The World Semiconductor Trade Statistics (WSTS) organization has released its updated Spring 2025 forecast, confirmed growth for 2025 and highlighting continued robust growth for the global semiconductor market through 2026.

WSTS Semiconductor Forecast Summary:

• Global market size is projected to reach $760.7 billion in 2026, driven by strong demand in logic and memory segments.
• Asia‑Pacific remains the largest semiconductor market with almost half of total global semiconductor sales in 2025.
• Americas region shows the strongest growth momentum, with a massive +45% surge in 2024 and continued double‑digit growth in 2025.
• Europe and Japan are smaller markets but show steady recovery in 2025–2026 after weaker performance in 2024.

The Regional Demand of Semiconductor Equipment: Why Localization Doesn’t Always Mean Growth

Regional Differences in Demand and Drivers of Semiconductor Equipment

United States:

• The Semiconductor equipment demand in United States is growing but orders often delayed until fabrication plants reach construction milestones with latest tool and technology.
• Headlines often announce “$20B fab investment” immediately, but actual tool orders lag by months until the fabrication plants are physically ready.
• This is why semiconductor fabrication plants in United States is majorly supported by continues government subsidies and the CHIP ACT.

Taiwan:

• Taiwan is another major regional destination for semiconductor fabrication plants with global key leader in semiconductor industry like Taiwan Semiconductor Manufacturing Company (TSMC), one of the largest independent largest dedicated independent semiconductor foundries with advance nodes technology.
• The demand of semiconductor equipment in this region is steady with advance extreme ultraviolet lithography technology for advance nodes such as 5nm, 3nm.

Korea:

• Korean semiconductor sector is dominated by equipment from key leader in semiconductor industry like Samsung and SK Hynix.
• Semiconductor equipment demand in this region depends on semiconductor memory cycle.
• The growing adoption of artificial intelligence in various sectors raised demand for high bandwidth memory semiconductor and other equipment in 2024.

China and India:

• Both China and India are attracting huge capital investment for local fabrication plant installation.
• The demand for semiconductor equipment is higher in these regions, however there is need of technological advance due to limited access to advance tools like extreme ultraviolet lithography

Europe:

• The dominance for semiconductor equipment in Europe is from key leader in semiconductor industry. Germany dominated by semiconductor equipment from Intel and STMicroelectronics dominates in France and Italy.
• Regulatory supports like the EU Chip Act supports equipment demand in this region, mainly power semiconductors and automotive industries.

Why Regional Expansion of Fabrication Plants Aren’t Equivalent to Creating New Global Equipment?

• Headlines often present building of fabrication plants in multiple regions as semiconductor boom or growing trend of semiconductor industry, but sometimes localizing of fabrication doesn’t create global demand, it just shifts equipment demand geographically.
• The regional expansion of fabrication plants is driven by government subsidies but its construction, adaptation latest tool and technology and equipment demand can be delayed.
• Building more fabs in different regions doesn’t automatically increase consumption. Instead, it redistributes equipment orders across regions because global chip demand is finite.
• The demand for equipment is driven by expansion of end market not just localization fabs.

Continuous Technological Advancement and Their Impact on Equipment Demand

1. Transitions of Node Technology:

Mature Nodes (28nm, 40nm, 65nm):

• The market volume for mature nodes with 28nm, 40nm and 65nm are high, because it requires low capital investment.
• The demand for mature nodes is come from automotive, industrial, IoT, and power devices, they on focused on legacy lithography and diffusion tools.

Advanced Nodes (5nm, 3nm, 2nm):

• The demands for advance nodes of 5nm, 3nm and 3nm are growing in adoption of artificial intelligence, data centers and smartphones.
• This node needs high capital investment for advance technology and tools.
• Equipment demand spikes due to EUV lithography, advanced etch, and deposition tools.

2. Uneven Equipment Demand

• Transition of technology creates uneven equipment demands across regions.
• Advanced nodes drive surges in demand for cutting‑edge tools (ASML EUV, Applied Materials deposition) while mature nodes sustain demand for older tools, but at lower margins.
• This uneven equipment demands creates cyclical imbalances: tool makers must balance between high‑end demand spikes and steady legacy orders.

3. Tool Intensity Differences

• Advanced nodes require far more tools per wafer start (higher tool intensity).
• Example: A 3nm fab may need 2-3× more lithography and etch tools compared to a 28nm fab.
• Mature nodes are less tool‑intensive, but still critical for industries where reliability matters more than density.
• This difference explains why Capex cycles can swing dramatically when new nodes ramp up.

Thus, analyzing semiconductor equipment demand by headlines and announcement could be misleading, because headlines highlight investments update and subsidy support as industry growth but demand from end market could be different and headlines presents downturns as industry crises but most slowdowns reflect normal capex timing shifts, inventory digestion, or temporary demand pauses. It is more accurate to observe other important indicators like equipment shipping trends, bill and backlog records, technological transition and fab utilization rate to analyze semiconductor equipment demand. Short-term volatility trend is a part of how the industry recalibrates before the next expansion and it is not a signal of crash. Semiconductor industry takes years to build technology and tool but equipment demand is driven by the future. Reading Capex cycles correctly is not about predicting the next quarter, it is about understanding where the industry is positioning itself for the next generation of growth.

Author:

Amit Mirdha

Associate Research Analyst

https://www.linkedin.com/in/amit-mirdha-577a5a264/