Last Update06 Aug 25Fair value Decreased 6.73%
Tokyo Electron’s consensus price target has been revised downward, primarily due to a slight reduction in revenue growth forecasts, with fair value dropping from ¥30,966 to ¥28,881.
What's in the News
- Board approved continuation of stock delivering scheme for TEL Group Officers in Japan and abroad.
- Issuance of stock options for stock-based compensation was approved by the board.
- Provided six-month earnings guidance: net sales JPY 1,150,000 million, operating income JPY 288,000 million, net income JPY 224,000 million, EPS JPY 488.93.
- Lowered FY26 full-year guidance: net sales JPY 2,350,000 million and net income JPY 444,000 million, below previous estimates.
- Reduced year-end dividend guidance to JPY 240.00 per share from JPY 373.00 per share.
Valuation Changes
Summary of Valuation Changes for Tokyo Electron
- The Consensus Analyst Price Target has fallen from ¥30966 to ¥28881.
- The Consensus Revenue Growth forecasts for Tokyo Electron has fallen slightly from 7.8% per annum to 7.4% per annum.
- The Future P/E for Tokyo Electron has fallen slightly from 25.08x to 24.37x.
Key Takeaways
- Accelerating demand for advanced semiconductor equipment and digital transformation trends strengthen long-term growth and recurring revenues for Tokyo Electron.
- Temporary customer investment delays are expected to resolve, while ongoing innovation and service sales support higher margins and earnings resilience.
- Reliance on cautious customer investment, heavy China exposure, and efficiency-driven demand shifts threaten Tokyo Electron's revenue stability and long-term growth prospects.
Catalysts
About Tokyo Electron- Develops, manufactures, and sells semiconductor production equipment in Japan, Europe, North America, Taiwan, China, South Korea, and internationally.
- The imminent launch of next-generation AI servers by 2027-which will require much denser, more advanced chips (e.g., 3nm nodes, 2.5x transistor counts, 4x memory/HBM stack)-is set to drive a significant and sustained increase in customer capital expenditures for advanced semiconductor equipment beginning in the second half of 2026, positioning Tokyo Electron to benefit from renewed order growth and top-line acceleration.
- The global move toward digital transformation (AI, cloud computing, IoT, 5G/6G, and edge computing) remains firmly intact, ensuring high wafer volumes and continuous technology migration; this underpins long-term demand for Tokyo Electron's tools and boosts the outlook for recurring revenue from both new equipment sales and an expanding installed base.
- Despite near-term customer investment pauses and a 6-month delay in some projects, there is no evidence of order cancellations or a change in the long-term growth trajectory-indicating that any revenue headwinds and margin pressure from lower utilization rates are likely temporary, with a strong rebound expected as deferred demand materializes.
- Tokyo Electron continues to invest heavily in R&D (¥295 billion in FY26) and capacity expansion (completing new development and production facilities), which should enable it to capture a greater share of high-value, advanced processes-supporting gross margin expansion and greater earnings resilience as the product mix shifts upscale.
- Field solutions (service/parts/modifications) sales are steadily rising due to higher fab utilization at advanced nodes, highlighting a growing stream of high-margin, recurring revenues that enhance both top-line growth and net margin stability, even when new equipment spending is cyclical.
Tokyo Electron Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Tokyo Electron's revenue will grow by 7.3% annually over the next 3 years.
- Analysts assume that profit margins will increase from 22.1% today to 22.7% in 3 years time.
- Analysts expect earnings to reach ¥679.7 billion (and earnings per share of ¥1506.3) by about August 2028, up from ¥535.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ¥788.0 billion in earnings, and the most bearish expecting ¥568.0 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.4x on those 2028 earnings, up from 18.5x today. This future PE is greater than the current PE for the JP Semiconductor industry at 15.9x.
- Analysts expect the number of shares outstanding to decline by 0.55% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.49%, as per the Simply Wall St company report.
Tokyo Electron Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Prolonged delays and deceleration in customer capital investment – driven by customers prioritizing productivity, yield enhancement, and a cautious approach to profitability rather than proactive expansions – could depress new equipment demand and cause revenue volatility or stagnation for Tokyo Electron in the near to medium term.
- Heavy exposure to the Chinese market (approximately 38.6% of quarterly sales) leaves Tokyo Electron vulnerable to sector weakness, ongoing or increased export controls, and growing share loss to local competitors in the legacy equipment segment, all of which may pressure revenues and margins.
- The shift in customer spend from aggressive capacity expansion to "solid" or deferred investments (notably among advanced logic and NAND customers) increases the risk that technology cycle upswings may not translate into commensurate equipment sales, amplifying the potential for uneven revenue growth and lower visibility.
- Semiconductor capital equipment industry cyclicality, including the risk of correction periods (such as the anticipated 6-month slowdown and the negative 5% WFE market growth revision for FY2026), could lead to earnings and cash flow fluctuations and make it difficult for Tokyo Electron to consistently expand net margins or hit ambitious mid-term targets.
- Increasing efficiency and yield improvements by customers could structurally reduce the required equipment spend per chip output, eroding long-term revenue growth opportunities for equipment suppliers such as Tokyo Electron even in the face of secular increases in end-market semiconductor demand.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of ¥28880.909 for Tokyo Electron based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥35300.0, and the most bearish reporting a price target of just ¥21500.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥2999.6 billion, earnings will come to ¥679.7 billion, and it would be trading on a PE ratio of 24.4x, assuming you use a discount rate of 8.5%.
- Given the current share price of ¥21690.0, the analyst price target of ¥28880.91 is 24.9% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.