Citi Insight: Equipment Bull Case Sees $250 Billion, Real Test in 2027

TL;DR

• According to market reports, Citigroup expects the global WFE bull case scenario to reach $250 billion by 2028.
• TSMC, Samsung, and Intel are expected to account for approximately 55% of global WFE spending in 2025, with their financial guidance determining the potential for upward revisions.
• The benefits for equipment stocks still depend on the sustainability of AI demand, Samsung's investment execution, and Intel's foundry progress.

TSMC, Intel, and Samsung will sequentially release their second-quarter results in mid-to-late July, marking a test of capital expenditure expectations for semiconductor equipment stocks. According to market reports, Citigroup remains bullish on wafer fab equipment spending ahead of the earnings season, believing that AI/HPC demand is driving up investments in advanced process nodes, memory, and foundry operations. For investors, WFE (Wafer Fab Equipment) spending covers procurement of critical equipment like lithography, etching, deposition, and testing, directly impacting orders and revenue for equipment companies such as Applied Materials, Lam Research, and Teradyne.

Equipment Cycle Focus Shifts from 2026 to the Following Two Years

The previous rally in semiconductor equipment stocks was primarily driven by investment expectations from AI servers, advanced packaging, HBM, and advanced logic processes. Now, the market is questioning whether capital expenditure can be revised upward from 2026 and extend into sustained growth in 2027 and 2028.

According to market reports, Citigroup's WFE bull case scenario projects approximately $145 billion in 2026, $200 billion in 2027, and $250 billion in 2028. Brokerage reports also indicate that TSMC, Samsung, and Intel together account for about 55% of global WFE spending in 2025. If these three companies maintain or raise their medium-to-long-term capital expenditure, there is room for the equipment cycle to continue rising.

The upcoming earnings calls will provide more direct clues. TSMC is scheduled to report earnings on July 16, and Intel will announce results after the market close on July 23. Samsung released its second-quarter earnings guidance on July 7 and will hold its earnings conference call on July 30 at 10:00 KST. The market will not only focus on revenue and profit for the quarter but will also scrutinize capital expenditure guidance, demand for advanced process nodes, memory investment pace, and management's commentary on AI demand over the next three years.

The transmission chain for equipment companies is relatively clear. When wafer fabs increase capital expenditure, equipment companies benefit first through orders and shipments. If demand remains tight, equipment manufacturers also have opportunities to support gross margins through product mix improvements and higher capacity utilization. Equipment-related companies mentioned in Citigroup's report include Applied Materials, Lam Research, Teradyne, and AEIS, but the performance of these stocks still hinges on their customers' procurement pace.

TSMC is the Strongest Anchor; 2027 Assumptions Significantly Above Consensus

TSMC remains the most critical entity in this AI capital expenditure cycle. During its April earnings call, TSMC confirmed its 2026 capital expenditure guidance of $52 billion to $56 billion and indicated spending would trend toward the higher end of the range. The market expects the company to likely maintain its 2026 guidance in the upcoming report and continue to emphasize demand for advanced process nodes and advanced packaging.

The bigger focal points lie in the subsequent two years. Citigroup's model projects TSMC's capital expenditure at $75 billion for 2027 and $80 billion for 2028, corresponding to year-over-year growth rates of 36% and 7%, respectively. These assumptions are above market consensus, with the gap particularly pronounced for 2027.

The core support for this judgment is continued AI/HPC demand driving expansion in advanced process nodes. TSMC handles AI chip demand from Nvidia, AMD, Broadcom, and others, and also benefits from advanced packaging, CoWoS, and migration to even more advanced nodes. As long as AI chip orders remain strong, TSMC has the incentive to continue procuring more front-end and back-end equipment.

However, high capital expenditure does not automatically lock in the equipment cycle. Whether the optimistic model for 2027 and 2028 can be realized still depends on the sustainability of AI orders, the pace of customers' proprietary chip development, easing of advanced packaging bottlenecks, and whether equipment delivery cycles can keep up.

Samsung and Intel Provide Incremental Gains, But Also Uncertainty

If TSMC provides the foundation of the equipment cycle, Samsung and Intel determine the upside potential.

During its April earnings call, Samsung stated that AI demand would drive a significant year-over-year increase in capital expenditure. Citigroup's model shows that Samsung's semiconductor capital expenditure will maintain relatively high growth rates from 2026 to 2028. This involves two tracks: HBM and high-end DRAM demand boosting memory investment, while advanced logic and foundry business will determine whether Samsung can continue to catch up with TSMC in more advanced process nodes.

Samsung's long-term investment plans also amplify the imagination space for equipment demand. There are discrepancies in public sources regarding specific figures, with Samsung press releases and media reports covering different scopes such as the group's total domestic investment, Samsung Electronics' future business plans, and semiconductor cluster investments. A more prudent statement is that Samsung's total semiconductor-related investment in South Korea over the next decade or more is estimated at over 2,000 trillion Korean Won. This long-term plan spans many years, and how much translates into near-term equipment procurement still depends on the pace of specific fab construction, equipment installation, and capacity ramp-up.

Intel's situation is more complex. The company adjusted its 2026 capital expenditure guidance from "flat to down" to "flat" during its first-quarter earnings call, stating that tool and equipment-related spending would increase by approximately 25% year-over-year. In Citigroup's model, Intel's capital expenditure assumptions for 2027 and 2028 still have upside potential, with greater flexibility in 2028.

Whether Intel can realize this incremental growth hinges on its foundry business. Validation of the 18A process, customer decisions on 14A, and potential collaborations with major customers will all affect future investment intensity. If progress with advanced process customers falls short of expectations, it will be difficult for capital expenditure to materialize under the optimistic scenario. If substantial progress is made in the foundry transformation, Intel will become a significant incremental source for continued growth in global WFE.

Micron Validates Memory Demand, But Cannot Replace Guidance from the Big Three

Capital expenditure from memory manufacturers is also providing validation for the equipment cycle. Micron has raised its FY2026 capital expenditure guidance to approximately $27 billion. The company also indicated that its FY2027 quarterly capital expenditure level is expected to be higher than the roughly $10 billion level in FY4Q26. If this quarterly level continues, total FY2027 capital expenditure could exceed $40 billion.

This indicates that the HBM, high-end DRAM, and memory demand brought by AI servers is not just a story for logic processes. Memory expansion will also drive up equipment procurement, particularly benefiting sectors related to deposition, etching, testing, and packaging. According to reports, Micron's long-term investment plan in the US has also been raised to over $250 billion, extending the timeline to around 2035.

However, Micron serves more as corroborating evidence for memory demand and cannot replace the guidance from TSMC, Samsung, and Intel. These three companies together account for about 55% of global WFE spending in 2025. What truly determines the height of the equipment cycle is their stated capital expenditure plans for 2026 to 2028 over the next few quarters.

The $250 Billion Assumption Hinges on Post-2027 Performance

The biggest divergence in this earnings season preview is that Citigroup's assumptions for 2027 and 2028 are significantly more optimistic than the market. The upward revision for 2026 is relatively easier to understand, as AI demand is already reflected in orders and capacity expansion. However, for capital expenditure to continue increasing substantially beyond 2027, multiple conditions need to align simultaneously.

AI/HPC demand needs to remain robust, and not just be a short-term concentrated procurement by cloud vendors. TSMC's expansion of advanced process nodes and advanced packaging requires sustained customer order support. Samsung's massive long-term investment plans must translate into concrete equipment spending, not just remain at the level of fab construction and forward planning. Intel's foundry business must also prove that its 18A and 14A nodes have sufficient customers and mass production prospects.

Equipment delivery cycles, the macroeconomic environment, and fluctuations in the semiconductor cycle will also impact actual spending. Capital expenditure plans can be raised, but they can also be delayed due to changes in customer demand, lower capacity utilization rates, or financing pressures.

The story for equipment stocks continues to revolve around the three major wafer fabs. If earnings releases continue to signal strong capital expenditure, the global WFE bull case scenario will gain further support. If management's tone regarding 2027 and 2028 turns cautious, market expectations for $250 billion in equipment spending will need to be discounted. The current point of contention is not whether AI capital expenditure exists, but whether this expansion cycle can extend beyond 2026.