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TL;DR: 9–5 Investor Summary
What’s happening:
Since rates began rising in 2022, several semiconductor equipment stocks have clearly outperformed major software companies.
Why it matters:
Toolmakers are in key positions, turning AI demand into backlogs and clearer short-term revenue.
What the market is missing:
“Semiconductors” aren’t just one trade. Equipment vendors make money from scarcity, not just from selling more chips.
Key risk to watch:
Watch for capex digestion cycles or slower adoption of new lithography tools.
Investor lens:
When rates are high, companies with backlogs, pricing power, and physical bottlenecks have acted differently from long-term software stocks.
The Story We’re Told About High Rates
The macro playbook is familiar.
Rates go up.
Discount rates rise.
Capital-intensive industries suffer.
Semiconductor manufacturing appears to be a prime casualty. Fabs cost tens of billions. Tooling is complex and expensive. Payback periods are measured in years, not quarters.
But since the tightening cycle started in 2022, some semiconductor equipment companies quietly outperformed even the most admired software firms.
From early 2022 through early 2026:
Lam Research climbed roughly +230% $LRCX ( ▲ 0.82% )
Applied Materials gained around +130% $AMAT ( ▲ 1.17% )
ASML advanced close to +85–90% $ASML ( ▲ 0.8% )
Over a similar stretch:
Microsoft rose roughly +15–20% $MSFT ( ▲ 1.18% )
Apple gained about +45–50% $AAPL ( ▲ 2.24% )
The exact numbers depend on when you start measuring, but the trend is clear. Equipment stocks didn’t act like typical rate victims.
So what’s going on?
“Semiconductors” Is Not One Business
Investors often say, “I own semis,” as if that covers everything.
But the semiconductor stack is layered:
Designers
Foundries
Memory producers
And the companies that supply the tools used to manufacture every advanced chip
Each layer has its own economics.
Foundries such as TSMC and integrated manufacturers such as Intel incur massive capital expenditures. They build the fabs. They finance the expansion.
Toolmakers sell their products into that growth.
This difference is important when rates are high.
Higher rates affect equities through two channels:
Discounting. Future cash flows are worth less when the risk-free rate rises.
Financing. The cost of new borrowing increases, raising hurdle rates for new projects.
Big software companies are often valued for their long-term earnings. When discount rates rise, their valuations drop, even if the business remains strong.
In contrast, equipment vendors often have backlogs that cover several quarters or even years. Much of their revenue is already locked in.
Backlogs change the equation.
The Lithography Choke Point
If there is a single bottleneck in advanced chipmaking, it is lithography.
ASML is currently the only supplier of commercial extreme ultraviolet lithography systems used for leading-edge nodes. EUV operates at a 13.5-nanometre wavelength, enabling patterning at 5nm, 3nm and below.
High-NA EUV tools now in production reportedly cost $350 to $400 million each and have lead times of over a year.
This combination creates something rare in public markets:
A product governed by physics
Limited substitution
Long delivery schedules
And customers with few alternatives
For 2025, ASML reported:
€32.7 billion in net sales
Gross margin of 52.8%
Net income of €9.6 billion
Backlog of approximately €38.8 billion
Installed base management revenue exceeded €8 billion, tied to servicing and upgrading existing systems.
This isn’t a speculative growth story. It looks more like infrastructure economics.
Before any AI model is trained or any cloud workload grows, someone has to pattern the transistors. That’s when the toolmaker gets paid.
Backlog Is Not Just a Number
In equity valuation, duration matters.
If a company’s value depends heavily on cash flows a decade from now, it will feel discount-rate changes more acutely.
When a company’s backlog covers several years, more of its value comes from near-term earnings. This shortens its effective duration.
Applied Materials reported a fiscal 2025 backlog of roughly $15 billion, including both system orders and service contracts.
Service revenue from installed tools acts differently from revenue from new capacity. Even if a fab delays expanding, it still needs:
Maintenance
Yield optimisation
Process upgrades
These aren’t optional in a competitive race to the next node.
When rates are high, investors often prefer companies with clear revenue and strong pricing power. Toolmakers fit this profile more than people might think.
AI Changes the Capex Conversation
AI infrastructure spending has changed the usual capex cycle.
Hyperscalers such as Amazon, Alphabet, and Microsoft have funded large AI data-centre expansions largely from operating cash flow.
This matters because investments funded internally are less affected by small changes in borrowing costs.
AI accelerators, high-bandwidth memory, and advanced packaging all make the process more complex. More complexity means more steps, and more steps mean more tools.
Industry forecasts from SEMI in late 2025 pointed to wafer fab equipment spending rebounding toward roughly $126 billion in 2026, with further growth projected into 2027, supported by AI-related logic and memory demand.
Higher rates might slow upgrades in consumer electronics, but they don’t eliminate the need to secure advanced computing power.
Industrial Policy as a Shock Absorber
Public incentives make the idea that “higher rates crush capex” more complicated.
The EU Chips Act outlines more than €40 billion in public support through 2030.
The U.S. CHIPS and Science Act includes a 25% advanced manufacturing investment credit for semiconductor manufacturing property and equipment.
When projects secure grants or tax credits, their real cost of capital declines. Tool purchases are then partly supported by policy.
The typical buyer of advanced equipment isn’t usually a heavily leveraged startup. It’s more often a national champion or a cash-rich hyperscaler.
That’s a very different risk profile.
None of This Removes Cyclicality
Semiconductor equipment remains cyclical.
Memory oversupply can slow orders. Export controls can limit addressable markets. Adoption of next-generation High-NA tools could take longer than expected.
Backlogs can shrink, and margins can change. These stocks aren’t as safe as utilities.
The point is narrower.
After 2022, when rates were high, the market didn’t punish all capital-intensive companies equally. Instead, it separated discretionary capex from strategic bottlenecks.
Toolmakers, particularly in lithography and advanced process control, operate in environments where substitution is limited, and demand is driven by competitive necessity.
When borrowing is costly, investors often look for real cash flows, strong pricing power, and clear order books.
In this cycle, the companies making the transistors have sometimes seemed more stable than those writing the code that runs on them.
That is not the story most textbooks tell. It is, however, the one the market has priced.
Disclaimer: This publication is for general information and educational purposes only and should not be taken as investment advice. It does not take into account your individual circumstances or objectives. Nothing here constitutes a recommendation to buy, sell, or hold any investment. Past performance is not a reliable indicator of future results. Always do your own research or consult a qualified financial adviser before making investment decisions. Capital is at risk.
