Bernstein weighs in on the path ahead for Japanese semiconductor equipment stocks

Investing.com - Japanese semiconductor production equipment names have risen rapidly over the past month, driven in part by increased demand from artificial intelligence chipmakers for testers of the technology, according to analysts at Bernstein.

In a note to clients, the analysts led by David Dai highlighted several of these firms that have seen their share prices rally in recent weeks.

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Advantest (TYO:6857), a manufacturer of automatic chip testing gear, has been one particular beneficiary, with the stock spiking on expectations for higher demand from firms like Nvidia (NASDAQ:NVDA) and TSMC, the strategists said.

However, they suggested that investors "take profit now," arguing that revenue in the years to come at the company is "unlikely to present much growth year-over-year due to capacity build out this year." Advantest shares are also richly valued, they flagged, adding that many projections for tester demand "that’s been floating around are likely misleading, as they may have confused the old and new testers."

Other backend Japanese chip equipment makers have also seen their shares rise, although small cap firms "may still have upside," the analysts said. They especially like Disco (OTC:DSCSY) Corporation (TYO:6146), a precision tools manufacturer, highlighting the business’s "long term growth prospects," including drivers such as "backside power, NAND stacking, and Apple (NASDAQ:AAPL) WMCM packaging."

But front end equipment makers provide a "better opportunity" for investors, the Bernstein analysts said.

"We continue to like Kokusai (TYO:7722) and Tokyo Electron (TYO:8035) for the growth in memory and China equipment demand. Our recent China WFE tracker suggests strong China WFE demand continues this year," they wrote. "The recent potential restriction on foreign fabs in China would be additional reason to buy Japan front end equipment."

The strategists gave Advantest a "market-perform" rating, while Disco, Kokusai and Tokyo Electron were rated as "outperform."

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