VAT Group: A High-Conviction Play on the Semiconductor Tech Transition

The semiconductor industry is undergoing a pivotal transformation in 2025, driven by the race to unlock the next frontier of chip manufacturing: 2nm nodes and gate-all-around (GAA) architectures. At the heart of this technological leap lies a critical shift in capital expenditure (capex) priorities, with wafer fabrication equipment (WFE) spending increasingly directed toward etch and deposition tools. For investors, this transition creates a unique opportunity to bet on companies that dominate the most in-demand segments of the value chain. VAT Group AG, the undisputed leader in high-end vacuum valves for semiconductor manufacturing, is not just positioned to benefit—it is structurally designed to outperform the broader WFE market.

Strategic Positioning: Leading-Edge Dominance in Etch/Deposition Valves

VAT's strength lies in its near-monopoly on vacuum valves for etch and deposition tools, which are now central to advanced chip production. According to recent data, VAT's market share in semiconductor and semi-related vacuum valves reached 70% in Q4 2024, up from 68% the previous year. This growth reflects the company's ability to capitalize on the industry's shift away from lithography—traditionally a dominant WFE segment—toward etch and deposition, which require more complex vacuum-based processes for 2nm and GAA architectures.

The company's Valves segment, which accounts for 84% of order intake in semiconductor applications, is seeing demand surge as manufacturers add more process steps to achieve nanometer-scale precision. For example, deposition tools—used to build ultra-thin layers of materials—saw 12% growth in 2024, while etch tools, critical for carving intricate chip geometries, grew by 5%. These trends are not cyclical but structural, driven by the physical limitations of Moore's Law and the need for vacuum solutions to enable next-generation chips.

Margin Resilience: Operational Excellence Amid Macroeconomic Headwinds

VAT's financials underscore its ability to convert this strategic positioning into robust profitability. In Q2 2025, the company reported an EBITDA margin of 29.6%, up from 22.0% in Q2 2024. At constant foreign exchange (FX) rates, the margin expanded further to 31.2%, highlighting VAT's resilience against currency volatility. This margin expansion was fueled by three pillars:
1. Operational Efficiency: VAT's focus on productivity measures, including automation and lean manufacturing, has reduced per-unit costs.
2. Mix Effects: Higher-margin semiconductor-related orders now constitute 84% of the Valves segment's intake, versus more commoditized industrial valves.
3. Pricing Power: With a 70% market share in critical applications, VAT has limited competition to constrain its margins.

The Global Service segment, which provides spare parts and repairs, further bolsters margins. In Q2 2025, it delivered an EBITDA margin of 43.2%, driven by elevated fab utilization rates and recurring revenue from consumables. This diversification into high-margin services creates a buffer against cyclical swings in capital equipment sales.

Order Backlog and Future Outlook: A Springboard for 2025 Growth

While VAT's Q2 2025 order backlog of CHF 293.8 million reflects a 13.4% sequential decline, this dip is misleading. The reduction stems from aggressive execution of an existing backlog rather than weak demand. For context, the company's Global Service segment saw a 23% sequential jump in orders, and semiconductor-related orders remained resilient despite broader macroeconomic uncertainty.

The key takeaway is that VAT is already preparing for the next upcycle. Its 70% market share in etch/deposition valves positions it to capture a disproportionate share of the expected 5% WFE market growth in 2025. With Chinese OEMs accelerating investments in self-sufficiency and global manufacturers ramping up 2nm node production, VAT's capacity expansions and R&D investments are perfectly timed.

Investment Thesis: A High-Conviction Bet on Structural Growth

For investors seeking exposure to the semiconductor equipment cycle, VAT Group offers a compelling case. Its dominant market share in etch/deposition valves—segments that are central to the 2nm/GAA transition—ensures it will outperform the broader WFE market. The company's margin resilience, even in the face of FX headwinds, demonstrates operational discipline, while its order execution highlights its ability to scale with demand.

The risks, of course, are macroeconomic: a sharper-than-expected slowdown in global capex could temper growth. However, given the long-term shift toward vacuum-based processes and VAT's technological moat, these risks appear manageable. For high-conviction investors, VAT Group represents a rare combination of structural growth, margin durability, and a clear line of sight to the next semiconductor upcycle.

In a sector where most players are at the mercy of cyclical swings, VAT Group is building a business that thrives on the very forces reshaping the industry. This is not just a stock—it's a stake in the future of chip manufacturing.