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Players in the Zacks Electronics - Manufacturing Machinery industry are suffering from challenging macroeconomic conditions globally, higher inventory levels, and uncertain trade policy. This has been negatively impacting capital expenditure spending, particularly within the automotive and industrial markets, and is expected to continue in the near-term.

However, Entegris (ENTG - Free Report), Kulicke and Soffa Industries (KLIC - Free Report), and Axcelis Technologies (ACLS - Free Report) are benefiting from increased demand for highly complex semiconductors due to the rapid proliferation of high-performance computing, artificial intelligence (AI), smartphones, the Internet of Things, augmented reality, and virtual reality.

AI-enabled applications continue to drive demand for advanced logic and high-bandwidth memory products. The growing demand for advanced packaging, lithography, and wet processing solutions has been the key catalyst for industry participants.

The Industry's Description

The Zacks Electronics - Manufacturing Machinery industry comprises companies that provide a range of solutions to address the needs of wafer processing facilities, as well as device packaging and test facilities, and semiconductor manufacturing processes.

The solutions offered by the industry participants include thin-film processing systems, photonics, process-control tools (that perform macro defect inspections and metrology), metal-organic chemical vapor deposition, advanced packaging lithography, wet etch and clean, laser annealing, and 3D wafer inspection systems.

A few industry participants also offer micro-contamination control products and advanced material-handling solutions. Contamination-free transportation, storage and delivery of materials have gained immense significance in recent times.

3 Trends Shaping the Future of the Electronics Industry

Miniaturization Enhances Prospects: Industry participants are benefiting from the ongoing transition in semiconductor manufacturing technology. The demand for advanced packaging, which enables the miniaturization of electronic products, remains strong.

The consistent shift to smaller dimensions, increasing complexity in transistor design and the rapid adoption of new device architectures, such as FinFET, 3D NAND, and GAA, along with the increasing utilization of new manufacturing materials to increase transistor and bit density, are driving the demand for solutions provided by the industry players.

Moreover, the emergence of techniques like wafer-level packaging is driving the need for a high-purity manufacturing environment free of contaminants. The rising demand for clean processing, as well as wafer carrier cleaning and conditioning tools, is a key catalyst for industry participants.

Complex Process Driving Demand: The requirement for faster, more powerful, compact, and energy-efficient semiconductors is expected to increase rapidly with emerging applications, including artificial intelligence (AI), high-performance and cloud computing, smartphones, wearable technology, self-driving vehicles, the Internet of Things (IoT), gaming and virtual reality, and smart healthcare.

Semiconductor manufacturers like Intel, Samsung, and Taiwan Semiconductors are primarily looking to maximize manufacturing yields at lower costs. This is making semiconductor manufacturing processes more complex and driving the demand for solutions offered by industry participants. The rapid adoption of IoT-supported factory automation solutions is another contributing factor. The increasing deployment of 5G and the growing demand for edge computing are other key catalysts.

NAND, DRAM & SSD Demand Strong: The improving demand for NAND and DRAM is a positive for the industry participants. Strong SSD demand, driven by data center and cloud spending, is another key catalyst. DRAM is expected to benefit from strong demand in the data center, enterprise, and cloud segments. Strong demand for chips and higher spending on semiconductor capital equipment are aiding industry participants.

The Zacks Industry Rank Indicates Dim Prospects

The Zacks Electronics - Manufacturing Machinery industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #167, which places it in the bottom 31% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, analysts appear pessimistic about this group’s earnings growth potential. Since Oct. 31, 2024, the industry’s earnings estimate for 2025 has decreased by 55.4%.

Given the dim industry outlook, there are only a few stocks worth watching. However, before we present the stocks you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.

The Industry Lags the Sector and S&P 500

The Zacks Electronics - Manufacturing Machinery industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 over the past year.

The industry has declined 14.9% over this period against the S&P 500’s return of 17.9% and the broader sector’s appreciation of 28.9%.

One-Year Price Performance
 

Image Source: Zacks Investment Research

The Industry's Recent Valuation

On the basis of the trailing 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Electronics - Manufacturing Machinery companies, we see that the industry has been trading at 13.58X compared with the S&P 500’s 18.63X. This is below the sector’s trailing 12-month EV/EBITDA of 19.7X.

Over the last five years, the industry has traded as high as 15.66X, as low as 6.5X, and with a median of 12.89X, as the charts below show.

EV/EBITDA Ratio (TTM)
 

Image Source: Zacks Investment Research
 

Image Source: Zacks Investment Research

3 Electronics Stocks to Watch Right Now

Presented below is a rundown of the previously-mentioned stocks to keep an eye on.

Entegris

This Zacks Rank #3 (Hold) rated company is a leading supplier of critical advanced materials and process solutions for the semiconductor and other high-technology industries.

Through the Materials Solutions segment, Entegris offers chemical vapor and atomic layer deposition materials, chemical mechanical planarization (CMP) slurries and pads, ion implantation specialty gases, formulated etch and clean materials, and other specialty materials. The Advanced Purity Solutions segment offers filtration, purification, and contamination-control solutions.

Entegris is benefiting from strong demand for CMP slurries and pads as well as micro contamination control solutions. Expanding its manufacturing footprint with new facilities in Colorado and Kaohsiung, Taiwan, as well as the state-of-the-art Korea Technology Center, are noteworthy developments. However, a challenging macroeconomic environment and uncertainty over the U.S. trade policy are concerns for the company.

The Zacks Consensus Estimate for Entegris’ 2025 earnings has been steady at $2.81 per share over the past 30 days. Shares have dropped 4.9% year-to-date.

Price and Consensus: Entegris
 

Image Source: Zacks Investment Research

Kulicke and Soffa Industries

This Zacks Rank #3 (Hold) rated company designs, develops, manufactures, and sells capital equipment and consumables and provides services used to assemble semiconductor and electronic devices, such as integrated circuits, power discretes, light-emitting diodes, advanced displays, and sensors.

Kulicke and Soffa’s focus on vertical wires, power semiconductor, advanced dispense, and thermo-compression is expected to drive top-line growth in the near-term. The company has been benefiting from improved demand for ball, wedge, and TCB solutions. However, uncertainty over tariffs and trade policy is a headwind for Kulicke and Soffa.

The Zacks Consensus Estimate for the company's fiscal 2026 earnings has remained unchanged at $1.39 per share over the past 30 days. Shares have declined 12.3% year-to-date.

Price and Consensus: Kulicke and Soffa
 

Image Source: Zacks Investment Research

Axcelis Technologies

This Zacks Rank #3 (Hold) rated company designs, manufactures, and services ion implantation and other processing equipment used in the fabrication of semiconductor chips.

Headquartered in Beverly, MA, Axcelis is benefiting from robust demand for ion implantation systems in the silicon carbide market. The company’s broad manufacturing base is helping it to negate the impact of tariff-related uncertainties. 

The Zacks Consensus Estimate for Axcelis’ 2025 earnings has been steady at $4.13 per share over the past 30 days. Shares have returned 21.1% year-to-date.

Price and Consensus: Axcelis
 

Image Source: Zacks Investment Research 

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