The Fab Five equipment makers capture the pie
The ultimate winners of the semiconductor cycle are the equipment manufacturers that supply the fabrication facilities, as chipmakers are forced to spend their earnings on capital expenditures to resolve bottlenecks.
The argument
The guest argued that while chipmakers like Micron trade at seemingly cheap multiples due to high earnings, they lack a moat and must hand their retained earnings over to the 'Fab Five' equipment makers to build out capacity. This makes the equipment makers the ultimate consolidators of the industry's profits.
The thesis, stress-tested
✓ What validates it
- ✓Continued parabolic stock performance and order book expansion for the Fab Five
- ✓Increased CapEx guidance from major memory and foundry companies
▸ Risks discussed
- ▸A sudden drop in global chip demand could lead to canceled equipment orders
- ▸Geopolitical tensions surrounding Taiwan Semiconductor (TSMC) could disrupt the supply chain
Hear it yourself
"Four companies, ASML, which makes the big massive machines that make the clean room equipment, KALAC, KLA ten core, Applied Materials, and Lam Research. And all four of those companies are the ones that are making the stuff that, at this point, people are buying, but it's nowhere near what they're buying in terms of chips."
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