Citi: Semiconductor earnings season diverges: Tight memory supply, slower upward revisions to equipment earnings forecasts

Why are upward earnings revisions beginning to slow?

About one-third of the way through earnings season, companies that have reported third-quarter 2026 results have seen market consensus earnings per share estimates for calendar 2026 and 2027 raised by an average of 3% and 8%, respectively; the corresponding revisions after second-quarter results were 7% and 10%.
Citi notes that upward revision momentum has slowed more markedly for semiconductor equipment companies than for chipmakers; networking and analog chips lead in momentum, followed by computing chips, while equipment has weakened and memory has recovered. The Philadelphia Semiconductor Index has fallen 8% since the bank published its earnings preview.
Citi is more cautious on equipment stocks: supply-chain and component constraints could limit the scope for further increases in wafer fab equipment spending forecasts.

SK hynix’s results were driven by higher average selling prices; the company signed agreements of roughly five years with 14 major customers, covering more than half of its capacity for 2027–2028. Based on current customer demand, its DRAM and high-bandwidth memory capacity is effectively sold out through 2029.
Samsung says industry memory supply remains constrained and expects AI demand to continue exceeding industry supply in 2027–2028; the company has signed long-term supply agreements with 10 major customers.
Citi believes supply constraints will further improve the near-term memory supply-demand balance, benefiting Micron.

Texas Instruments beat expectations and raised guidance, driven by data-center and industrial demand; NXP’s fourth-quarter 2026 revenue outlook fell below market consensus because of weaker automotive demand.
Analog chipmakers are offsetting input cost inflation through price increases, lead times are lengthening, customer requests for faster delivery are increasing, and capacity utilization is around 85%. But Citi believes this recovery is at a relatively late stage and is broadly reflected in market consensus, so it prefers manufacturers with their own capacity and growing data-center exposure.

Citi says the capital spending outlooks of four of the five largest cloud providers are broadly little changed, pointing to year-on-year growth of approximately 90% in fiscal 2026 and more than 40% in fiscal 2027. Meta’s and Alphabet’s 2026 capital spending guidance is largely unchanged, implying year-on-year growth at the midpoint of 94% and 119%, respectively.
Microsoft lowered its capital spending outlook because of delays in third-party capacity deliveries, but its total capital spending guidance of 170 billion dollars for calendar 2026 still implies year-on-year growth of 44%; on that basis, Citi estimates Azure spending could reach 163 billion dollars, approximately 11 billion dollars below its previous forecast.
Looking ahead to 2027, Microsoft expects capital spending to accelerate in the second half of fiscal 2027, while Alphabet reiterated that spending will increase significantly in 2027; Citi also views Oracle’s statement that capital spending will peak in fiscal 2027 or 2028 as support for near-term spending.