Written by: Rita

J.P. Morgan, in its autumn report on the U.S. semiconductor and semiconductor equipment sector released on September 18, 2026, pointed out that the fundamentals of the semiconductor industry are strengthening, and the recent pullback in the sector is constructive. The bank's model shows that the semiconductor industry will grow by 118% in 2026 and by 35% in 2027. Wafer fabrication equipment is expected to grow by 31% in 2026 and by 38% in 2027. J.P. Morgan believes that the sustainability of AI infrastructure spending, uncertainty in frontier lab investments, high valuations, and geopolitical risks are the main volatility factors, but underlying demand and supply fundamentals remain robust.

J.P. Morgan analyst Harlan Sur pointed out in the report that the semiconductor cycles over the past decade have been demand-driven, with the supply side showing greater discipline in expansion. The last four downward cycles have all been demand-driven, and the supply chain has been more restrained in supply expansion. The bank believes that the structural differences in the current cycle are that supply discipline and the diversification of end markets have reduced cyclicality, making the industry more focused on profitability and the expansion of free cash flow.

Cloud Capital Expenditure Estimated at $954 Billion

J.P. Morgan's cloud capital expenditure dataset indicates that cloud capital expenditures are expected to be $954 billion in 2026, $1.41 trillion in 2027, and $1.54 trillion in 2028. Since the beginning of the year, expectations for cloud capital expenditures have been significantly revised upward. The bank notes that early monetization and ROI signals for AI are becoming more visible, with accelerated revenue growth in cloud and AI, expanded backlog orders, increased long-term contract capacity, and improved profitability in cloud and AI businesses.

If these trends continue, cloud service providers will have strong economic reasons to maintain high levels of AI infrastructure spending. J.P. Morgan believes that the improved economics of AI support a higher and longer-lasting spending environment, as well as stronger semiconductor fundamentals. The continued upward revision of cloud capital expenditure is a core support for the visibility of semiconductor demand.

AI ASIC Market Estimated at $70 Billion

J.P. Morgan estimates that the custom AI ASIC market will be approximately $60 to $70 billion in 2026, with a compound annual growth rate of 40% to 50% over the next few years. As AI workloads become more specialized, hyperscale vendors and frontier model builders are increasingly seeking workload-optimized chips to enhance performance, reduce power consumption, lower costs per token, and ensure supply.

Custom AI ASICs require deep expertise in multi-chip SoC design, high-speed SerDes, HBM memory interfaces, advanced packaging, and network and system-level productization. J.P. Morgan believes that most customers are unable to replicate these capabilities internally at scale. Broadcom and Marvell dominate the high-end ASIC market, with estimated market shares of 80% to 85% and 10% to 12%, respectively.

Broadcom's AI revenue is expected to rise from $58 billion in FY26 to $135 billion in FY27 and $245 billion in FY28, driven by projects from Meta, Google, Anthropic, OpenAI, and SoftBank/ARM. Marvell's data center revenue is expected to grow from $10 billion in CY26 to $16 billion in CY27 and $28 billion in CY28, driven by optical DSP, Amazon Trainium 3+4, Microsoft Maia, and additional Google XPU projects.

Storage Prices Expected to Rise by 250%

J.P. Morgan expects DRAM blended pricing to rise by approximately 250% in 2026 and by about 30% in 2027. NAND pricing is expected to increase by about 250% in 2026 and by approximately 25% in 2027. DRAM bit demand is forecasted to grow by 29% in 2026 and by 32% in 2027. NAND bit demand is projected to increase by 24% in 2026 and by 29% in 2027.

Long-term strategic customer agreements have become key cycle-shaping catalysts, locking in pricing and supply for DRAM and NAND, thus improving visibility. Capital expenditures remain disciplined, with capital intensity below historical averages, limiting the risk of oversupply. The primary demand-side risk is disruption driven by BOM inflation, particularly in the client and consumer markets. J.P. Morgan maintains an overweight rating on Micron.

Analog Chip Recovery Broadening

The recovery of analog chips is broadening into a more sustained upward cycle. Texas Instruments, Analog Devices, and Microchip Technology have all noted an improvement in industrial demand, accelerated exposure to AI/data centers, stronger aerospace and defense sectors, and resilient growth in automotive content. Forward demand signals are improving, channel inventories are healthier, order activity is stronger, and delivery times are better.

Pricing, delivery times, and margins are improving. Texas Instruments, Analog Devices, and Microchip Technology all report strengthening demand, lengthening delivery times, and more supportive pricing, with higher utilization rates and product mix expected to help margins. J.P. Morgan has an overweight rating on Analog Devices, with a target price of $500.

Wafer Equipment Estimated at $263 Billion

J.P. Morgan has raised its 2026 forecast for wafer fabrication equipment growth to 31% and to 38% for 2027. AI demand is expanding, with tool procurement ahead of multi-year greenfield/brownfield expansions. Foundry/logical spending is supported by TSMC N2/N3 construction, with Intel providing incremental upside. Research in Asia indicates that TSMC's roadmap is more aggressive, with multiple wafer fab shell constructions starting in the first half of 2026, and an increase in equipment orders from the second quarter of 2026.

Storage wafer equipment is expanding, led by increased DRAM capacity, with NAND spending expected to be more driven by conversion/migration before potential greenfield upside in the second half of 2028. J.P. Morgan believes that KLA offers the optimal risk-reward profile, supported by foundry/logical wafer equipment exposure in 2027, and Intel’s increased participation in yield/cost improvements and capital expenditures, leading to an upward consensus for CY27. J.P. Morgan has an overweight rating on KLA, Applied Materials, Lam Research, and MKS Instruments.

Top Picks Broadcom and Micron

J.P. Morgan's top picks include Broadcom, Analog Devices, Marvell, Micron, and KLA, while also favoring NVIDIA, Applied Materials, and Lam Research. Small and mid-cap favorites include Astera Labs, Anker, and MKS Instruments. Broadcom collaborates with four of the six AI ASIC customers on next-generation chip stacking projects on the 3D SOIC reference platform. Marvell achieves 33% more HBM stacking, 70% lower interface power consumption, and 25% more XPU silicon area with its custom HBM architecture.

Cloud capital expenditure of $954 billion supports semiconductor demand visibility, and AI ASICs and storage are the two main lines of this upward cycle.

Disclaimer

This article is a compilation and interpretation of third-party brokerage research reports (J.P. Morgan, September 18, 2026) by Chao Xiang Research, along with public market information. The ratings, target prices, earnings forecasts, and related judgments referenced in the text reflect the opinions of the brokerage analysts and represent the positions of their respective institutions, not those of Chao Xiang Research, and do not constitute any investment advice.

The market carries risks; decisions should be made independently. This article should not be taken as a basis for buying or selling any securities.