Tokyo Electron Posts a Record First Half and Forecasts Operating Profit Above ¥1 Trillion for the First Time on AI Chip Demand

The companies that build the machines used to make semiconductors are reaping the rewards of the artificial intelligence boom, and Japan's largest chip equipment maker has just forecast its best year ever.

Tokyo Electron reported record first-half revenue of ¥1.6674 trillion and operating profit of ¥506.7 billion on Friday, October 30, according to BigGo Finance's coverage of its earnings call. The company forecast full-year operating profit of ¥1.17 trillion ($7.41 billion), an 87% increase, according to a report published by WBOW, which described the forecast as stronger than expected. It would be the first time the company's annual operating profit has exceeded ¥1 trillion.

The company also announced plans to spend up to ¥150 billion to buy back about 25 million of its own shares.

"At present, there are no signs that this is slowing down," chief financial officer Hiroshi Kawamoto told reporters, referring to demand for chipmaking equipment.

Riding the AI wave

Tokyo Electron makes equipment used in key steps of semiconductor manufacturing, including coating and developing wafers, etching, deposition and cleaning. Its customers include the world's largest chipmakers, such as TSMC, Samsung Electronics, SK hynix, Intel and Micron.

The AI boom has driven a surge in investment by chipmakers in new production capacity, particularly for advanced logic chips used in AI accelerators and high-bandwidth memory used alongside them. Memory makers, in particular, have increased capital spending as AI demand has pushed memory prices and profits to record levels. Samsung said this week that it expects memory demand to exceed supply in 2027.

The memory capex boom

High-bandwidth memory (HBM) has become one of the most important products in the semiconductor industry. HBM is made by stacking multiple memory chips, which requires advanced manufacturing processes and specialised equipment. Memory makers are expanding HBM capacity rapidly, creating strong demand for equipment from companies such as Tokyo Electron.

SK hynix, the leading HBM supplier, said this week it would return about $75 billion to shareholders as higher memory prices boost profits, according to the same report.

Market jitters

The strong forecast came amid nervousness in technology markets about the scale of AI spending. Tokyo Electron's shares closed down 5% ahead of its earnings announcement, according to the report, after Alphabet, Intel and Amazon fell in US trading on concerns about high capital spending on AI. Asian technology stocks, including SK hynix, TSMC and Advantest, also came under pressure.

Investors are debating whether the massive investments by technology companies in AI infrastructure will generate adequate returns, and whether spending could eventually slow. Tokyo Electron's guidance suggests that, for now, chipmakers remain committed to expanding capacity.

The China factor

China has been a major market for chip equipment makers, as Chinese companies have invested heavily in building domestic semiconductor production in response to US export controls. Japan has imposed its own restrictions on exports of advanced chipmaking equipment to China, in coordination with the United States and the Netherlands. The balance between Chinese demand and export restrictions is an important factor for Tokyo Electron's business.

Japan's semiconductor revival

Tokyo Electron's success is part of Japan's broader effort to revive its semiconductor industry. The government has provided large subsidies to attract chipmaking investment, including TSMC's factories in Kumamoto and the Rapidus project to produce advanced chips in Hokkaido. Japanese companies remain world leaders in chipmaking equipment and materials, even though Japan's share of chip production has declined from its peak in the 1980s.

What it means for India

India is building its own semiconductor industry, with projects including Tata Electronics' fabrication plant at Dholera in Gujarat and Micron's assembly and test facility in Sanand. These projects will require equipment from companies such as Tokyo Electron, Applied Materials, Lam Research and ASML. Japan and India have deepened cooperation on semiconductors, with Japanese companies exploring investment in India's chip ecosystem.

The equipment oligopoly

The semiconductor equipment industry is dominated by a handful of companies. ASML of the Netherlands holds a monopoly on extreme ultraviolet lithography machines, used to make the most advanced chips. Applied Materials, Lam Research and KLA of the United States, and Tokyo Electron of Japan, lead in other critical processes. Together, these companies control most of the market for wafer fabrication equipment.

This concentration gives the companies significant pricing power and makes them strategically important. Governments view chipmaking equipment as a critical technology, which is why export controls on equipment have become a central tool in technology competition with China.

Shareholder returns

Tokyo Electron's ¥150 billion buyback reflects its strong cash generation and its commitment to returning capital to shareholders. Japanese companies have increasingly focused on shareholder returns in recent years, encouraged by corporate governance reforms and pressure from the Tokyo Stock Exchange to improve capital efficiency. Buybacks and higher dividends have contributed to strong performance in Japanese equities.

Cyclical risks

The semiconductor equipment business is cyclical. Chipmakers increase spending during booms and cut it sharply during downturns, causing large swings in equipment makers' revenues. The current AI-driven boom has extended the upcycle, but investors remain alert to the risk that spending could slow if AI demand moderates or if chipmakers build too much capacity.

Implications for investors

For investors, Tokyo Electron's results reinforce the view that semiconductor equipment makers are among the most direct beneficiaries of AI investment. Their fortunes depend on the capital spending of chipmakers, which in turn depends on demand from technology companies building AI infrastructure. As long as that spending continues to grow, equipment makers are likely to report strong results, though investors remain alert to any signs of a slowdown in AI investment.

What comes next

Tokyo Electron's performance in the second half will depend on chipmakers' capital spending plans, particularly for memory and advanced logic. Investors will watch for any signs of slowing AI investment, as well as developments in export controls and demand from China. For now, the company's record results and bullish forecast suggest that the AI-driven boom in chipmaking equipment has further to run.

Investors will also follow the company's order intake from memory makers and foundries closely, since orders placed today determine revenue over the coming quarters, and any change in the pace of orders would be an early signal of a shift in the AI-driven spending cycle that has powered the industry's recent growth. For Japan, the company's success is also a reminder of the country's enduring strength in the technologies that underpin the global semiconductor industry.