China's campaign to build a self-sufficient semiconductor industry just got more aggressive. Beijing is now telling chipmakers they need to source at least 50% of their equipment from domestic suppliers whenever they're adding new manufacturing capacity. It's a move that's reshaping the global chip equipment market and putting fresh pressure on foreign toolmakers who've long relied on Chinese demand.
According to reports, Chinese authorities are requiring companies seeking approval to build or expand fabs to prove through procurement tenders that at least half of their equipment comes from Chinese suppliers. It's not a suggestion—it's a requirement baked into the approval process.
The timing here matters. Beijing moved faster on this policy after the U.S. tightened restrictions limiting China's access to advanced semiconductor and AI technologies from companies like Nvidia Corp. (NVDA), Micron Technology Inc. (MU), and ASML Holding NV (ASML). When the U.S. said "you can't buy our best chips," China's response was essentially "fine, we'll make our own tools."
The mandate is forcing Chinese fabs to prioritize domestic vendors, which means intensified competition for the U.S., Japanese, and European equipment makers that have dominated China's market for years. American suppliers like Lam Research Corp. (LRCX) and Applied Materials Inc. (AMAT), along with Japan's Tokyo Electron, are facing a tougher operating environment as China deliberately shifts procurement away from foreign tools.
Wall Street Isn't Panicking Yet
Here's the interesting part: despite this policy shift, analysts are staying remarkably upbeat about leading U.S. equipment makers. Bank of America Securities analyst Vivek Arya expects Lam Research to post strong growth in 2026, driven by demand for advanced foundry, DRAM, and NAND upgrades, plus sustained AI-driven investment. He's made Lam his top pick in the sector.
Arya noted that Lam's recent results and guidance beat expectations even after factoring in an estimated $200 million hit from tighter China trade rules. His forecast? Lam's non-China business should grow more than 20% in 2026, with gross margins expanding beyond 50%. That's the kind of growth that makes losing some Chinese business a lot easier to stomach.
JPMorgan analyst Harlan Sur expects Applied Materials to grow at least in line with the wafer-fab equipment market in 2026, with even stronger gains later on, fueled by advanced packaging and high-bandwidth memory demand. Goldman Sachs analyst James Schneider highlighted Applied Materials' strong positioning in leading-edge logic, DRAM, and advanced packaging—all areas where cutting-edge technology still gives U.S. companies a significant edge.
The message from Wall Street is clear: yes, China's policy matters, but these companies have enough growth drivers outside China to keep expanding. AI infrastructure buildouts, advanced memory upgrades, and next-generation chip manufacturing are creating demand that doesn't depend on Beijing's approval.
Market Reaction
Price Action: Shares of Applied Materials were up 0.39% to $264.09 at the time of publication on Tuesday. The stock is approaching its 52-week high of $276.10. Lam Research shares were up 0.07%.
