Elon Musk's Terafab could give a major boost to this corner of the chip sector

By Britney Nguyen

SpaceX could spend about $135 billion on wafer-fab equipment over the next five years, UBS says

UBS initiated coverage of SpaceX's stock with a buy rating on Tuesday.

Elon Musk is preparing to spend billions of dollars to bring his chip-making vision to life, and that could double the size of one corner of the semiconductor market, according to UBS.

UBS is guiding for SpaceX's (SPCX) artificial-intelligence-focused business to devote about $1.1 trillion toward capital expenditures over the next five years, analyst Tim Arcuri said in a Tuesday note, after his colleague John Hodulik initiated coverage of the stock Tuesday with a buy rating.

About 20% of that amount will likely go toward the Terafab, according to Arcuri, referring to the facility where Musk plans to manufacture chips for SpaceX and Tesla. And "assuming the typical 60% capex split" for wafer-fab equipment, that could mean SpaceX will put $135 billion toward chip-making tools over the next five years - close to the current size of the global total addressable market for wafer-fab equipment, Arcuri added.

Even if only a portion of that projected spending materializes, Arcuri said it would support his "long-held conviction that industry WFE could approach" about $300 billion by 2029.

Musk's Terafab would likely include a mask shop, a leading-edge process for logic and memory chips and chip packaging and testing, Arcuri said.

Companies including KLA (KLAC) and Applied Materials (AMAT) make inspection and metrology equipment that is used to check photomasks for defects and accuracy. Lam Research (LRCX) and Teradyne (TER) also make chip-manufacturing and -testing equipment.

SpaceX has placed orders for chip-making equipment in the range of $5 billion for a pilot line next year, Arcuri said, citing conversations with suppliers. Arcuri expects that spending to grow to $10 billion in 2028, which could put the Terafab on the path to doling out more than $50 billion a year for wafer-fab equipment by 2030 or 2031.

At that rate, Musk's chip-making venture would be growing at the same rate as Taiwan Semiconductor Manufacturing Co. (TSM) (TW:2330) in terms of spending on wafer-fab equipment in the next four to five years, Arcuri said. TSMC builds a majority of the world's advanced chips.

That would be "a huge game changer for how high" the market for wafer-fab equipment can grow, Arcuri said, adding that he expects that question "to be a major theme" in upcoming earnings seasons as construction on the Terafab gets under way.

-Britney Nguyen

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07-07-26 1505ET