3Q26 Sector Preview: Constructive Setup Intact as Supply Constraints, AI Momentum, and Cyclical Recovery Support Further Revisions / Continued Equity Outperformance

We are entering the 3Q26 earnings season with a constructive, yet selective, stance on the semis / semicap equipment sector. Fundamentals have continued to improve over the last 3 months, supported by the same forces driving the group's YTD outperformance (SMH up 68%): sustained AI infrastructure investment, persistent supply tightness across the broader semis supply chain, and a broadening cyclical recovery in non-AI end markets. We expect a majority of covered companies to deliver solid 3Q results and constructive 4Q/CY27 commentary, extending the beat-and-raise cadence. However, focus this quarter should be less on demand strength, which is well understood, and more on supply — where constraints remain most acute, how long they persist, and when incremental capacity can alleviate tightness. Dynamics vary across the group, so we stay selective, favoring names where AI exposure, supply-constrained growth, pricing power and/or leverage to the broadening cyclical recovery translate most