Semiconductor Equipment Stocks Can Outperform Memory Sector, Bernstein Says

Semiconductor equipment stocks can outperform even when memory chip shares are declining, challenging a common investor assumption that the two sectors are closely linked, according to a new analysis from Bernstein.

In a note to clients on Monday, the investment firm pushed back on concerns that the fortunes of semiconductor production equipment (SPE) makers are tied directly to the volatile memory market.

A Weaker Link Than Assumed

Bernstein analyst David Dai stated that the "historical correlation of memory and SPE share prices is not high." The firm's research found that the correlation between top memory companies and the top five wafer fabrication equipment (WFE) firms was just 0.4 between 2012 and 2018.

While this correlation has increased to 0.6 since 2019, it remains significantly lower than the 0.8 to 0.9 correlation that SPE stocks have maintained with the broader PHLX Semiconductor Sector (SOX) index. This suggests investors can still benefit from diversification between the two sub-sectors, according to the note.

Historical Performance Divergence

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Bernstein highlighted two key periods where the performance of the two sectors diverged sharply, demonstrating that they do not always move in lockstep.

• Jan 2015 - Dec 2016: WFE stocks gained 21.9% while memory stocks fell 16.2%, a performance gap of over 38 percentage points.
• Jan 2021 - Dec 2022: WFE stocks rose 15.3% as memory stocks plummeted 34%, a divergence of nearly 50 percentage points.

Positive Outlook on Equipment Capex

Looking forward, Bernstein expressed a positive fundamental view on the WFE sector. The firm cited accelerating capital expenditure from memory producers as a key driver, pointing to SK Hynix's recently announced KRW 100 trillion investment in new fabrication plants.

Bernstein sees potential for "consensus upward revision" for the WFE market and for equipment company earnings per share (EPS) through 2028. The firm also maintained positive views on memory makers Samsung, SK Hynix, and Micron following a recent pullback in their share prices.