Morgan Stanley: SPE Sector Refuses to Pay for Incremental WFE, Market Awaits AI Capital Return Certainty

Morgan Stanley released a semiconductor capital equipment (SPE) industry report on September 7, outlining seven core debates. The firm noted that despite raising WFE forecasts, the market is no longer satisfied with the "more capacity expansion" narrative, and investors require clearer evidence of AI capital returns before paying for incremental WFE. Morgan Stanley recommends AEIS, MKS, and ONTO, which are priced by the market as "peaking in 2027," and maintains an "equal-weight" rating on the SPE sector.

Since last December, Morgan Stanley has raised its 2026 and 2027 WFE forecasts by 26% and 54%, respectively. Among these, the 2026 DRAM WFE forecast was raised by 47% to $53 billion; leading-edge logic WFE is expected to grow 72% in 2026 and 50% in 2027. However, equipment stocks have not followed suit; buy-side consensus expects 2027 WFE of approximately $230 billion, while Morgan Stanley forecasts $223 billion, leaving limited upside. Morgan Stanley estimates that each GW of computing power corresponds to approximately $7 billion in WFE demand, with incremental growth potentially coming from Terafab and mature process recovery.

[TechFlow]