Key Takeaways:
ASML Holding N.V. (NASDAQ: ASML) shares jumped 5.1% to $1,534 after UBS analysts designated the chip-equipment maker its top European semiconductor pick, citing an attractive valuation and a powerful memory-market growth cycle.
"The upgrade presents the “most compelling risk/reward profile in the sector,” UBS analyst Francois-Xavier Bouvignies said in a new research report, which raised the firm's price target to €1,900 from €1,600.
The move comes as ASML has lagged its U.S. peers, gaining about 40% year-to-date compared to advances of 48% to 70% for competitors like Applied Materials and Lam Research. UBS notes ASML's historical 10-year average price-to-earnings premium to U.S. rivals is 84%, but it currently trades at just a 6% premium.
The bullish call hinges on ASML’s position as “the most memory-exposed semi-cap name,” with 30-35% of its revenue projected to come from memory by 2026. This exposure drove a 23% compound annual growth rate in memory revenue from 2020 to 2025, far outpacing the 6% average for its peers.
The upgrade coincides with comments from ASML CEO Christophe Fouquet, who stated this week that the first semiconductor products made with the company's next-generation High-NA extreme ultraviolet (EUV) lithography systems will be released within months. These systems, priced at nearly $400 million each, can produce chip features up to 66% smaller than current tools.
While major customer TSMC has expressed caution about the high cost, other industry giants are moving forward. Intel and memory manufacturer SK Hynix have both committed to deploying the new technology. UBS estimates High-NA can deliver cost reductions of 20-40% on critical manufacturing layers, anticipating widespread adoption within two to three years.
The broader market for chip stocks was weaker on Tuesday, with the Nasdaq falling 0.8% ahead of Nvidia's earnings report. Despite the sector-wide dip, UBS's forecast remains optimistic, projecting ASML's earnings per share will reach €48.42 in 2027 and €59.73 in 2028, running 15-20% ahead of market consensus.
The upgrade suggests ASML's recent underperformance is a buying opportunity, not a sign of weakness. Investors will now watch for the initial High-NA-produced chips and the Q2 earnings report for confirmation of the memory market's strength.
This article is for informational purposes only and does not constitute investment advice.
