The Zhitong Finance App learned that Morgan Stanley released the latest research report that the strong growth momentum of the Chinese wafer manufacturing equipment (WFE) market is expected to continue from 2027 to 2028. The bank expects China's WFE spending to increase from US$45.6 billion in 2026 to US$55.8 billion in 2027, and further reach US$68.6 billion in 2028, with a year-on-year increase of 23% in both 2027 and 2028. As domestic DRAM and NAND manufacturers continue to expand production and the localization of key semiconductor manufacturing links accelerates, local equipment manufacturers are expected to continue to increase their market share; by 2028, the expansion of advanced process logic chip production capacity may also open up new growth space for the industry.
Morgan Stanley still has a positive view of the semiconductor industry in Greater China as a whole, and continues to give North China Huachuang (002371), Zhongwei (688012), and ACM Research (ACMR.US), the parent company of Shengmei Shanghai, a “plus” rating. Although the bank lowered the target prices of the three companies due to factors such as increased R&D investment, it believes that the medium- to long-term logic of localizing semiconductor equipment in China has not changed.
China's WFE market may approach $69 billion in 2028, memory chips will become the main growth engine
Morgan Stanley expects the size of China's WFE market to grow from US$45.6 billion in 2026 to US$55.8 billion in 2027, and reach US$68.6 billion by 2028. This means that between 2026 and 2028 alone, China's WFE spending will increase by nearly $23 billion. Over the same period, China's share of the global WFE market is expected to reach 28%, 25%, and 27%, respectively, and will continue to occupy an important position in the global semiconductor equipment market.
Unlike the previous investment cycle, which was mainly driven by the expansion of production by mature process fabs, Morgan Stanley believes that the structure of China's WFE expenditure is changing, and the investment focus is gradually shifting towards memory chips and more advanced process technology. Among them, growth in 2027 is expected to be mainly driven by the expansion of memory chip production. As domestic DRAM and NAND manufacturers increase production capacity, demand for deposition, etching, and cleaning equipment is expected to continue to grow. By 2028, the expansion of advanced process logic chip production capacity may become a new growth driver, further extending device demand from the storage field to advanced logic chip manufacturing.
Judging from the degree of localization, Morgan Stanley estimates that in 2026, the localization rate of WFE equipment in China is only about 25%, which means that local manufacturers still have more room to replace imports.
Changxin Technology and Changjiang Storage continue to expand production and equipment demand from 2027 to 2028 received important support
Memory chips are one of the core logics of Morgan Stanley's optimism about the semiconductor equipment market in China.
In the DRAM sector, the bank expects Changxin Technology to increase production capacity of about 100,000 pieces/month in 2026, 2027, and 2028, respectively. According to previous estimates, Changxin Technology's overall DRAM production capacity is expected to increase from 180,000 pieces/month in 2025 to 500,000 pieces/month in 2028, while the product structure is gradually being upgraded to higher value products such as DDR5, server DRAM, and HBM.
Morgan Stanley pointed out that mass production of Changxin Technology Gen4B products, DDR5 and server DRAM certification, and HBM development continue to advance. However, DUV (deep ultraviolet) lithography equipment is still one of its main external bottlenecks.
According to the bank's latest supply chain survey, the Lingang production expansion project originally planned by Changxin Technology may have been delayed, and more front-end production capacity may shift to Hefei. However, Morgan Stanley believes that this is more of an adjustment in the timing and location of production expansion rather than a fundamental change in the company's medium-term production expansion target.
On the NAND side, the expansion of Changjiang Storage's production is also worth paying attention to. Morgan Stanley expects Changjiang Storage to increase production capacity by about 35,000 tablets/month in 2026, and about 100,000 tablets/month in 2027 and 2028, respectively.
Meanwhile, Changjiang Storage is promoting the A-share listing. Its IPO plans to raise 33 billion yuan, of which about 20.8 billion yuan will be used to upgrade mass production line technology. Morgan Stanley believes that this means that in addition to building new fabs, technology upgrades themselves will continue to create demand for semiconductor equipment, providing room for further growth for equipment such as etching, deposition, and cleaning.
Export controls may become a “double-edged sword” affecting production expansion in the short term; in the long run, they will accelerate domestic production replacement
In addition to growing demand, Morgan Stanley is also paying special attention to the impact that the proposed US MATCH Act may have on the semiconductor equipment industry in China.
According to research reports, if finally implemented, the bill will seek to push US allies to adopt more consistent policies on export control of key semiconductor equipment, and may cover key equipment such as DUV immersion lithography, TSV deposition and etching, low temperature etching, and cobalt deposition equipment, which is currently difficult for China to achieve the same capacity supply on a sufficient scale.
The restrictions may not only concern the export of equipment, but may also extend to equipment installation, calibration, maintenance, software and firmware updates, training, and other technical support. The wafer manufacturers involved may include SMIC, Huahong, Huawei, Changxin Technology (688825), and related facilities under Changjiang Storage.
Morgan Stanley believes this could have two effects. In the short term, if some key overseas equipment is still difficult to be replaced by domestic products, stricter restrictions may affect the pace of equipment installation and production capacity climbing in domestic fabs, thus posing a certain implementation risk.
However, in the medium term, the escalation of restrictions may also force domestic fabs to certify domestic equipment more quickly. Given that Morgan Stanley estimates that the localization rate of WFE equipment in China is only about 25% in 2026, further tightening of export restrictions may increase the urgency for fabs to use domestically produced etching, deposition, and cleaning equipment, thereby driving local equipment manufacturers to gain greater market share.
As a result, Morgan Stanley summarized potential policy changes as: in the short term, they may slow down the implementation of production expansion in some fabs, but in the medium term, they may become a catalyst for equipment localization.
North Huachuang is still the first choice, but the target price was lowered to 788 yuan
In terms of individual stocks, Morgan Stanley continues to give North China Chuang an “plus” rating, and believes that it is still one of the main beneficiaries of the broader coverage of China's semiconductor equipment localization trend.
North Huachuang's business spans many key links such as deposition, etching, and heat treatment, so it can not only benefit from the expansion of memory chip production, but also participate in domestic replacement of advanced process equipment. Morgan Stanley believes that Chinese logic chip and memory chip manufacturers may still maintain high capital expenses from 2026 to 2027, which will continue to support the revenue growth of North China Innovation.
However, the bank lowered the target price of North China Huachuang from 818 yuan to 788 yuan. The main reason was not that demand expectations deteriorated, but rather the assumption that R&D expenses were raised, taking into account delivery delays caused by restrictions on parts procurement in the second quarter of this year.
Morgan Stanley lowered North Huachuang's 2026, 2027, and 2028 EPS forecasts by 14%, 5%, and 6% to 10.93 yuan, 17.71 yuan, and 22.27 yuan, respectively; revenue forecasts for the same period were reduced by only 2%, remained unchanged, and 1%, respectively. This means that the decline in profit forecasts comes more from the cost side, rather than weakening medium- to long-term demand judgments.
Specifically, the bank expects North Huachuang's revenue to grow from 39.353 billion yuan in 2025 to 50.109 billion yuan in 2026, further rise to 70.389 billion yuan in 2027, and reach 85.875 billion yuan in 2028.
Maintaining ACM Research's “Accumulation” Rating New Product Development Drags Short-Term Profit Margins
Morgan Stanley also maintained ACM Research's “Overweight” rating, but lowered the target price from $130 to $115.
Similar to North China's Huachuang, this target price adjustment is mainly due to an increase in R&D expenses rather than a weakening demand for equipment. Morgan Stanley maintained ACM Research's 2026-2028 revenue forecast of US$1,172 billion, US$1,542 billion, and US$1,857 million, respectively.
The bank expects that the company will increase investment in research and development of new equipment platforms such as PECVD and Track, so the 2027 and 2028 operating profit margin forecasts will be lowered to 17.7% and 20.6% from the previous 19.0% and 21.7%, and the two-year EPS forecast will be reduced by 11% and 4%, respectively, to 3.87 US dollars and 5.50 US dollars, respectively. The 2026 EPS forecast remains unchanged at $2.82.
However, Morgan Stanley believes that higher R&D investment will help ACM Research expand its product portfolio and service markets in the long term. In addition to traditional cleaning equipment, the company's layout in fields such as electrochemical plating (ECP), advanced packaging, and PECVD may become a new source of growth in the future.
China and Micro are expected to benefit from the localization of storage equipment, and the target price was adjusted to 428 yuan
For China and Micro companies, Morgan Stanley also maintained an “gain” rating and adjusted the target price to RMB 428. The report points out that this target price change is mainly related to the previous share split, rather than a marked weakening of fundamental judgments.
Morgan Stanley believes that China Micro has an important strategic position in the localization process of etching equipment in China, and is expected to benefit from the continued expansion of production by memory chip manufacturers. The company not only continues to receive new orders from advanced process and storage customers, but also expands the product line of wafer manufacturing equipment such as epitaxial equipment and process control, and has entered the CMP field through acquisitions.
According to the report, as companies such as Changxin Technology and Changjiang Storage expand production capacity, local memory chip makers' demand for domestic etching and deposition equipment is expected to continue to increase, and China Micro will be one of the important beneficiaries of this trend.