Semiconductor Toolmakers: The Quiet Winners in a High-Rate World

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 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:

Over a similar stretch:

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?

Investors often say, “I own semis,” as if that covers everything.

But the semiconductor stack is layered:

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:

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.

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:

For 2025, ASML reported:

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.

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:

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 infrastructure spending has changed the usual capex cycle.