Guotai Haitong Securities has released a research note indicating that the cleanroom industry is transitioning from a phase of valuation re-rating driven by Fab expansion expectations to a period where order growth is converting into revenue and earnings per share (EPS) realization. The current AI-driven storage upcycle has already transmitted from price and profitability gains to capital expenditure and Fab expansion, with the lengthy wafer fab construction cycle creating a notable lag and persistence effect for cleanroom demand relative to storage profitability.

The industry's ongoing momentum now hinges on wafer fab expansion pace, order continuity, and earnings delivery capability, according to the brokerage.

AI Demand Meets Supply Constraints, Extending the Cycle's Staying Power

Reviewing historical storage cycles, improved downstream terminal demand first drives up prices for DRAM and other memory products, which then flows through to revenue and margin improvements at memory manufacturers. This cycle differs from traditional consumer electronics upturns, as AI server ramp-up is boosting demand for HBM and high-performance DRAM. Meanwhile, HBM structurally squeezes wafer capacity, and with long lead times for new cleanrooms and Fab construction, memory makers are further enhancing demand visibility through long-term supply agreements. A tight supply-demand balance and product mix upgrades are jointly sustaining this storage cycle.

Profit Recovery Transmits to Expansion, Fab Build Timelines Stretch Out Cleanroom Momentum

Historically, capital expenditures at memory manufacturers tend to lag earnings improvements, with firms gradually raising spending after profitability recovers. In the current cycle, Micron's capex intensity has already reached historically elevated levels. Once capex is committed, projects must still pass through investment decisions, civil works, cleanroom construction, equipment installation, and secondary hook-ups, meaning capacity cannot be released immediately. This creates a transmission chain: storage earnings improvement to capex expansion, then to Fab starts, cleanroom order releases, and finally revenue recognition.

Domestic Wafer Fabs Build the Base, Storage Expansion Adds Core Incremental Growth as Order Inflection Points Move Toward Earnings Delivery

Domestic cleanroom demand is not solely driven by memory manufacturers—continuous expansion by wafer foundries forms the industry's demand foundation, while capacity additions from players like ChangXin Memory Technologies and Yangtze Memory Technologies Co. contribute to cyclical demand elasticity. As Fab projects continue to materialize, new orders at cleanroom companies are the first to reflect industry momentum, with backlogged orders forming a revenue reserve for the future that is progressively recognized as projects are executed. The latest domestic semiconductor expansion is already appearing on the order books of cleanroom firms, positioning the industry to shift from an order inflection point into an earnings delivery stage.

Wafer Manufacturing Led the Initial Re-rating, Momentum Broadens to Cleanrooms as Valuation Switches from PE Expansion to EPS Delivery

Historically, overseas memory stocks have traded on expectations for supply, demand, and earnings changes, with share price turning points potentially preceding the peak of profit cycles. The current domestic rally, however, shows a pattern of rotation from wafer manufacturing into beneficiaries of Fab capital spending. In Q3 2025, the wafer foundry sector strengthened first, with the cleanroom segment gradually picking up steam from Q4 2025 onward. As cleanroom orders and earnings are validated through 2026, sector valuation is further shifting from earlier expansion expectations toward order delivery and earnings growth forecasts. Consensus EPS estimates have been consistently revised upward, and the next leg of the rally will depend more on converting orders into revenue and profits, along with the sustainability of earnings forecast upgrades.

Risk Warnings

Downside risks include weaker-than-expected growth in AI server and storage demand, premature declines in memory prices or industry momentum, slower-than-anticipated wafer fab capex and construction progress, lower-than-expected cleanroom order intake or revenue recognition, and failure of earnings delivery along with valuation pullbacks.