TOKYO -- Japanese chip equipment maker Tokyo Electron's operating profit is likely to grow about 60% to reach a record 1 trillion yen ($6.3 billion) for the fiscal year ending March, with earnings buoyed by strong sales and price increases.

"Our clients' investment momentum is strong and has accelerated further since we announced our full-year results for the previous fiscal year," Chief Financial Officer Hiroshi Kawamoto said. "Depending on our sales this fiscal year, we expect operating profit could reach the level of 1 trillion yen." The company stopped issuing full-year earnings forecasts from this fiscal year because of the risk of sharp swings in client investment related to artificial intelligence. Instead, it has switched to releasing forecasts on a half-year basis. As of late July, it projected operating profit of 458 billion yen for the April-September period, up 51% on the year.

Profits are expected to grow even faster in the second half, meaning full-year operating profit is certain to substantially exceed the record 697.3 billion yen posted in the fiscal year ended March 2025. The average market forecast is 1.03 trillion yen, according to QUICK Consensus. There are concerns about possible over-investment in AI by major U.S. cloud service providers.

Amazon, Google-parent Alphabet, Microsoft and Meta continue to invest heavily. The four U.S. tech giants recorded a combined free cash flow deficit of $94.6 billion in the April-June quarter, a figure derived by combining their operating and investing cash flows. Their AI investments exceed the cash generated by their core businesses.

"AI investment is backed by real demand," Kawamoto said. He pointed to agentic AI, which can perform tasks autonomously, and physical AI, which controls robots, adding that "the scenario in which semiconductor demand inevitably increases, including through improvements in semiconductor performance, remains intact." Tokyo Electron also expects to improve its profit margin through price increases and other measures. It has already been negotiating higher prices and reached agreements with some customers.

The increases are expected to begin contributing to earnings in the January-March quarter. Hiroshi Kawamoto aims to brings Tokyo Electron's gross profit margin close to 50% by March 2027. "We'll ask [customers] to bear the cost of added value," Kawamoto said, citing requests for advanced deliveries and improvements that can produce immediate results.

The company is also working to boost productivity through the use of robots and AI. Kawamoto said Tokyo Electron aims to brings its gross profit margin, which stood at about 47% in the April-June 2026 quarter, "closer to 50% by next March."

In the semiconductor equipment industry, growth in the testing segment has been particularly notable. U.S.-based Teradyne posted net income of $374 million for the second quarter this year, up 4.7-fold on the year. As semiconductor structures become increasingly complex and the cost of producing defective chips rises, chipmakers are implementing more thorough testing. Tokyo Electron makes probers, equipment used to test semiconductor chips.

"The testing burden on semiconductor manufacturers is increasing," Kawamoto said. "There may be opportunities to increase the added value of our equipment, for example by enabling testing during the semiconductor manufacturing process." The company is also eager to expand into new areas of semiconductor production. Demand for high-bandwidth memory used for AI applications is driving growth in back-end processes such as semiconductor assembly.

Tokyo Electron is seeing strong demand for its bonders, equipment used to stack memory chips. "We want to expand our presence in back-end processes beyond bonders," Kawamoto said. "To achieve sustained growth as a company, we need to take on challenges in new fields."