As TSMC hits a new high, Damo is optimistic that Fanlin Group (LRCX.US) will become the big winner in the GAA era

The Zhitong Finance App learned that at the beginning of the US stock market on Monday, the stock price of TSM.US (TSM.US) reached a record high, with a total market value approaching 2.5 trillion US dollars. The market's optimism about the demand for advanced manufacturing processes and AI chips continues to heat up. However, upstream equipment leader Fanlin Group (LRCX.US) declined 1%. According to Morgan Stanley's latest research report, as full surround gate (GAA) nodes such as TSMC 2nm accelerate, Fanlin Group will become one of the main beneficiaries, reaffirm the “increase in holdings” rating, and raise the target price from 367 US dollars to 385 US dollars.

December quarterly results are expected to exceed expectations

Morgan Stanley predicts that Fanlin Group's quarterly results up to December will be strong. Revenue is expected to reach 9 billion US dollars, higher than the market's general expectations of 8.5 billion US dollars, and the risk bias is upward. The bank believes that the semiconductor equipment industry has broken through demand (clean rooms) and supply chain constraints, and the annual operation rate of wafer factory equipment (WFE) is expected to exceed 200 billion US dollars in the December quarter, an increase of 60% over the previous year. Fanlin Group is expected to be the fastest growing equipment supplier for the third year in a row. Given the unprecedented scale of early delivery of DRAM and 2nm logic processes, as well as the company's ability to execute, it is not ruled out that its revenue guidance for the December quarter will be higher than $9 billion.

Big winners in the GAA era: logical share continues to rise

According to the report, Fanlin Group's logical share will increase by about 300 basis points in 2025, and is expected to increase by another 80 basis points in 2026. Previously, the market had doubts about the sustainability of the company's logical share growth, as the 2025 growth was partly driven by the Chinese market. But Morgan Stanley now believes that Fanlin Group's share of leading logical markets will continue to grow.

Specifically, TSMC's 2nm process is a key point for Fanlin Group to increase its share in the GAA era. Morgan Stanley estimates that the Panlin Group increased its share from 3nm to 2nm by about 200 basis points. Its WFE expenditure per 2nm wafer increased by about 50% compared to 3nm, while the overall WFE expenditure per wafer increased by about 30%. Furthermore, Fanlin Group's share of TSMC's capital expenditure is expected to increase by about 10 basis points from fiscal year 2025 to fiscal year 2026, and will increase significantly by about 130 basis points by 2027.

Morgan Stanley estimates that Fanlin Group's logical share will reach 11.8% in 2026, close to its overall WFE share of 12.3%, reflecting the transformation of the company's product portfolio from focusing on NAND to a more diversified terminal market.