Japanese chip testing equipment giant Advantest has overtaken Tokyo Electron (TEL) in market capitalization for the first time in nearly two decades, signaling a shift in the balance of power within semiconductor equipment manufacturing. The rise underscores how artificial intelligence (AI) is transforming demand across the supply chain, with back-end testing equipment emerging as a key beneficiary.
AI drives demand for testing equipment
According to Nikkei Asia, Advantest's market value topped JPY10 trillion (approx. US$67.9 billion) on September 10, surpassing TEL for the first time in 19 and a half years. The surge reflects that the focus of semiconductor technological innovation has shifted from front-end to back-end processes, with extended testing times for AI chips clearly contributing to performance growth.
The widespread use of generative AI has heightened demand for high-performance semiconductors. With technologies such as vertically stacked chips and chiplets increasing complexity and costs, improving yield rates has become a top priority for chipmakers, further boosting demand for testing solutions.
Advantest now commands a 58% global market share in testing equipment. Its strong position has allowed it to capture AI-specific opportunities, particularly as Nvidia's AI chips—manufactured by TSMC—rely on Advantest's back-end tools. This is expected to help Advantest experience strong business expansion.
TEL faces mounting headwinds
By contrast, TEL's strength lies in front-end process equipment, including thin film deposition, coating and developing, etching, and cleaning. The company long held a market valuation advantage amid competition in circuit miniaturization, but this is the first time since March 2006 that its market cap has fallen behind Advantest.
TEL remains upbeat about medium- to long-term sales of advanced equipment for AI servers. Yet, except for coating and developing tools, most of its product lines hold only 20-30% market share. Weak investment in NAND Flash for smartphones and PCs has also weighed on short-term performance.
In addition, slowing demand in the Chinese market has hurt earnings. TEL has cut its net profit forecast for fiscal year 2025 (April 2025-March 2026) by 18% year-over-year.
Risks add to investor caution
Adding to its challenges, TEL was hit by a legal case in August 2025, when a former employee of its Taiwan subsidiary was suspected of leaking confidential information on TSMC's 2nm chip technology. The case is under investigation by Taiwan's High Prosecutors' Office.
Given that TSMC is a crucial customer, any strain in their relationship could further weigh on TEL's performance. Combined with slowing sales and market share pressure, the development has made investors more cautious about the company's outlook.
Article translated by Willis Ke and edited by Jack Wu
