Shenwan Hongyuan has released a research report stating that China's machine tool orders showed a steady recovery in 2025, with production growth continuing into the first quarter of 2026. Many machine tool manufacturers reported a return to positive year-on-year earnings growth in Q1 2026. The overall surge in orders reflects a broad-based recovery in capital expenditure willingness across downstream industries, alongside a potential concentrated release of capacity expansion and equipment replacement demand. Liquid cooling technology is transitioning from an "optional feature" to a "standard necessity" for data centers and AI servers, significantly boosting demand for related machine tools. Furthermore, the recovery in consumer electronics, coupled with high-end product iterations, is also driving equipment investment. Shenwan Hongyuan's key views are as follows:
China's machine tool orders demonstrated a steady recovery in 2025, with production growth continuing into Q1 2026. Many machine tool manufacturers reported positive year-on-year earnings growth for the quarter. According to data from the China Machine Tool & Tool Builders' Association, in 2025, new orders and order backlogs for China's metalworking machine tools increased by 7.9% and 2.5% year-on-year, respectively, continuing the growth trend from the previous year. Among these, new orders and order backlogs for metal-cutting machine tools grew by 9.3% and 7.9% year-on-year, respectively. In Q1 2026, China's output of metal-cutting machine tools reached 213,000 units, a year-on-year increase of 3.4%, while output of metal-forming machine tools was 42,000 units, up 2.4% year-on-year. At the listed company level, manufacturers including Qiaofeng Intelligent, Gosun CNCTech, Haitian Precision, Niigata CNC, and Kede CNC all achieved positive year-on-year earnings growth in Q1 2026, with Qiaofeng Intelligent reporting a 41.98% year-on-year increase in net profit attributable to shareholders.
Japanese machine tool orders hit a record high in March, indicating strong growth in overseas demand. Data from the Japan Machine Tool Builders' Association (JMTBA) shows that in March 2026, Japanese machine tool orders reached 193.4 billion yen, a 28% year-on-year increase, setting a new monthly record. The primary growth drivers were downstream sectors such as semiconductor manufacturing equipment, data centers, aerospace, and robotics. Overseas orders amounted to 142.9 billion yen, a 40% year-on-year increase, with orders from both North America and Asia reaching record highs.
The rise in orders confirms an overall positive demand outlook, with high-growth segments leading the way. As a core industrial sector, machine tool orders serve as a strong leading indicator. The overall order surge reflects a recovery in downstream industries' willingness to invest capital, alongside a potential concentrated release of capacity expansion and equipment upgrade needs. Analysis by industry segment reveals some divergence, with high-demand sectors such as liquid cooling, consumer electronics, aerospace, and robotics showing particularly strong demand and significantly higher growth momentum than the industry average.
Liquid cooling is becoming essential in supercomputing centers, driving demand for specific machine tools. Amid the explosive growth in global AI computing demand, liquid cooling technology is evolving from an "optional configuration" to a "standard necessity" for data centers and AI servers. Core components like cold plates and connectors require extremely precise machining for flow channel accuracy, sealing reliability, and surface roughness. 1) Liquid cooling connectors: Requirements include micron-level sealing, zero burrs, and arbitrary interchangeability, driving demand for Swiss-type lathes, CNC lathes, and turning-milling复合 machining centers. 2) Liquid cooling plates: These demand uniform flow channels, zero-defect welding, and high flatness, increasing demand for machining center-type machine tools. 3) Liquid cooling pump bodies: Requirements include corrosion resistance, leak-proof performance, and low vibration/noise, spurring demand for turning-milling复合 machining centers and high-precision grinding machines.
The recovery in consumer electronics, combined with high-end product iterations, is driving equipment investment. 3C components are characterized by miniaturization and high precision, primarily involving smaller machine tools like drilling and tapping machines, engraving machines, and vertical machining centers. On one hand, the密集 launch of new products such as AI phones, foldable screens, and AR/VR devices, coupled with government subsidies for digital product upgrades, is directly driving upstream equipment investment through the consumer electronics recovery. On the other hand, material and process iterations, such as the increased penetration of titanium alloy frames in high-end models and the doubled processing volume for foldable screen phone frames, are boosting demand for high-rigidity and high-precision equipment.
Key companies to watch include: 1) Equipment manufacturers benefiting from high-growth downstream sectors like liquid cooling and 3C: Qiaofeng Intelligent, Tsugami China. 2) Equipment manufacturers showing an earnings inflection point due to the general recovery: Niigata CNC, Haitian Precision, Gosun CNCTech, Kede CNC. 3) The high growth in machine tool demand will also boost demand for CNC systems, favoring domestic substitution: Huazhong CNC. 4) Equipment investment will generate demand for consumables, favoring tooling companies for sales growth and profit margin expansion: Huarui Precision, OKE, Xinrui Shares, Walder.
Risk warnings include potential downside risks from weaker-than-expected downstream demand, intensifying industry competition, and fluctuations in raw material prices.