US Semiconductor Equipment: What are Investors Asking? Downside Scenarios

Following the sharp correction in semiconductor and hardware technology stocks this week, including a ~10% pullback in the semi-cap group, investors have increasingly focused on potential downside scenarios. While Citi had cautioned ahead of SEMICON West that select component shortages could constrain equipment industry shipments and limit upside to 2027/28 WFE expectations, these constraints are broadening to include gas delivery, DRAM, PC boards and magnets components. Although the current cycle is fueled by strong AI demand, Citi sees parallels to the 2020-22 Covid period, when supply shocks and shortages of ICs and subsystems constrained WFE growth despite robust underlying demand. Based on sensitivity analysis across 2028 WFE scenarios and applying 2020-22 trough P/E multiples, Citi estimates the Big Three equipment stocks (AMAT, KLAC, LRCX) have ~10% additional downside potential in the WFE-scenario base case and ~30% downside potential in the bear case. Target prices are $710 fo