Sustainable Growth Advisers, LP on Disco
Thesis
SGA initiated Disco because it holds roughly 70-80% share in cutting, grinding and thinning equipment used in semiconductor manufacturing. Its equipment is increasingly critical as AI drives more complex packaging architectures such as HBM, hybrid bonding, silicon photonics and advanced 3D packaging. A sizable consumables and service component tied to a large installed base creates recurring revenue, while the critical nature of its processes gives Disco substantial pricing power and industry-leading profitability. SGA expects greater processing complexity per wafer to support low-20% revenue growth and high-20% earnings growth over the next three years.
“we believe Disco is well positioned to deliver low-20% revenue growth and high-20% earnings growth over the next three years.”
Key risks
- Semiconductor capital spending is cyclical.
- Delays in adoption of hybrid bonding or co-packaged optics could slow growth.
- China represents roughly 30% of revenue and continues to pursue semiconductor self-sufficiency.