Semiconductors: Materials in wafer markets

Silicon still the dominant wafer material

High-purity Si is by far the most widely used input material for wafers. Equipment supplier ASML Holding expects roughly 11.2m wafer starts using Si per month in 2025. Manufacturing silicon wafers is a complex process, using very precise measuring equipment, advanced furnaces and specialised dicing techniques. In recent years, the wafer market has contracted, following growth in 2021 and 2022. Growth of the dollar value of the wafer market is correlated with the semiconductor end market, although the latter tends to be more volatile. In addition to end-market demand, wafer stocks and build capacity are important factors. Given the oligopolistic nature of the silicon wafer market (with only five dominating players and their large capacity fabricators), equipment suppliers experience lumpy order patterns and swings in demand.

Alternative materials like SiC and GaN are growing

Si is not always the optimal material for building semiconductors. Alternative materials are emerging, particularly in the power chips segment, where energy efficiency and switching performance are critical. In photonic integrated circuits, which are primarily used for data transmission, Si is less effective as it does not interact well with light (photons). SiC is the second-largest wafer material by market size at $3.4bn, while GaN is widely used in power devices. Indium phosphide (InP) and GaAs are increasingly used in photonic chips. The GaN and GaAs wafer markets are currently valued at around $300m each.

Valuations of materials companies

Suppliers to wafer makers represent an interesting investment opportunity, in our view. This segment is often overlooked as semiconductor specialists tend to focus on the large chip manufacturers rather than wafer suppliers, and even less so on their material suppliers. Nonetheless, these players hold a critical position in the semiconductor supply chain as technological progress drives changing material requirements. In valuation terms, market leaders Shin-Etsu and Siltronic trade on an average FY26e EV/EBITDA multiple of 6.6x, while niche players Soitec and IQE average 8.3x. Tool suppliers like PVA TePla and Aixtron trade at an average of 9.6x. Excluding US players, this figure drops to 8.4x, compared with the broader semiconductor equipment sector average of 15.8x.  

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