Electronics Manufacturing Machinery Industry’s Trends and Performance Insights

The Zacks Electronics – Manufacturing Machinery sector is currently experiencing benefits from an increase in capital investment directed toward high-performance computing, AI, mobility, augmented reality, and virtual reality solutions among semiconductor manufacturers. The shift in cloud computing infrastructure is particularly noteworthy. Companies such as Entegris ENTG, MKS Instruments MKSI, and Axcelis Technologies ACLS are positioned to gain from these trends, as they provide essential solutions to semiconductor manufacturers and OEMs. The demand in cloud and data centers, healthcare, and automotive sectors significantly fuels this industry. However, overall, these companies are facing challenging global macroeconomic conditions, with particular weakness evident in the 3D NAND market.

Industry Overview

The Zacks Electronics – Manufacturing Machinery industry includes firms that supply a variety of solutions tailored to the needs of wafer processing, device packaging, and testing facilities within semiconductor manufacturing. Their offerings encompass thin-film processing systems, photonics, process-control tools for macro defect inspections and metrology, metal-organic chemical vapor deposition, advanced lithography, wet etching and cleaning tools, laser annealing, and 3D wafer inspection systems. Some companies also provide micro-contamination control products and advanced material-handling solutions, making the contamination-free transportation and storage of materials increasingly crucial in today’s market.

Key Trends Impacting the Electronics Industry

Miniaturization is Driving Demand: Semiconductor manufacturing technology is undergoing significant transformation, favoring miniaturization to meet market demands. The robust requirement for advanced packaging, allowing smaller electronic products, continues unabated. Significant advancements in new device architectures, such as FinFET transistors and 3D-NAND technology, combined with the use of new manufacturing materials, boost demand for innovative solutions. Additionally, techniques like wafer-level packaging necessitate high-purity environments free from contamination, further increasing the need for clean processing technologies.

Complex Processes Fueling Growth: An accelerating demand for faster, more efficient semiconductors is expected alongside the growth of cloud computing, IoT, and AI technologies. Prominent semiconductor manufacturers, including Intel, Samsung, and Taiwan Semiconductors, are pressing to optimize production yields while minimizing costs. The increasing complexity of semiconductor manufacturing processes will continue to drive demand for industry solutions. As IoT-enabled factory automation expands and 5G deployment intensifies, these trends remain critical for driving the industry’s growth.

Demand for NAND, DRAM, and SSDs Remains Robust: The increasing demand for NAND and DRAM chips positively affects industry players. The surge in solid-state drive (SSD) demand, spurred by investments in data centers and cloud infrastructure, is a significant catalyst. DRAM benefits particularly from the robust demand across data center, enterprise, and cloud segments, supporting higher spending on semiconductor capital equipment.

Zacks Industry Rank Reflects Positive Trends

Housed within the broader Zacks Computer and Technology sector, the Zacks Electronics – Manufacturing Machinery industry holds a Zacks Industry Rank of #69, placing it within the top 27% among over 250 Zacks industries.

This ranking indicates bullish near-term prospects, as our research shows that the top half of Zacks-ranked industries tend to outperform the bottom half by a rate of more than two to one. The industry’s placement in the top 50% is attributed to a positive earnings outlook for constituent companies. Analysts show increased optimism, with 2024 earnings estimates for the industry rising by 2.4% since September 30, 2024.

Given the favorable industry outlook, several stocks warrant attention. Before diving into specific stock recommendations, let’s review the industry’s recent performance and current valuation metrics.

Performance Compared to the Sector and S&P 500

Over the past year, the Zacks Electronics – Manufacturing Machinery industry has underperformed the overall Zacks Computer and Technology sector and the S&P 500.

The industry’s return stands at 15.9%, compared to the S&P 500’s 39.4% and the sector’s increase of 48.3%.

One-Year Price Performance

Current Valuation of the Industry

Based on the trailing 12-month EV/EBITDA ratio, which is a common metric for evaluating Electronics – Manufacturing Machinery companies, the industry currently trades at 12.32X, significantly lower than the S&P 500 at 19.38X and below the sector’s average of 19.08X.

Over the last five years, industry valuation has fluctuated between a high of 18.37X and a low of 7.89X, with a median of 12.52X, as illustrated in the accompanying charts.

EV/EBITDA Ratio (TTM)

Three Electronics Stocks to Watch

Entegris: This company holds a Zacks Rank of #3 (Hold) and is a leading supplier of crucial advanced materials and process solutions for the semiconductor and high-tech industries.

Based in Billerica, MA, Entegris anticipates gradual recovery in the semiconductor market within the latter half of the year, expecting acceleration into 2025. For the current…