On Friday, Morgan Stanley (NYSE:MS) adjusted its stance on ASML Holding NV (LON:0QB8) (AS:ASML:NA) (NASDAQ: ASML) stock, shifting the rating from Overweight to Equalweight and reducing the price target to €800.00 from the previous €925.00.
The investment firm cited potential headwinds for the semiconductor capital equipment sector in Europe, including a possible spending slowdown which could impact earnings growth for ASML in the years 2025 and 2026.
ASML, known for its semiconductor manufacturing equipment, may face challenges due to a projected decrease in DRAM spending, which currently accounts for approximately 46% of the company's system sales in the second quarter of 2024. The fluctuation of DRAM spending is a significant factor for ASML, as it could directly affect the company's financial performance.
Despite the concerns over DRAM, Morgan Stanley acknowledged that certain segments within the semiconductor industry are expected to remain strong. High Bandwidth (NASDAQ:BAND) Memory (HBM), which is part of the DRAM spend and is utilized in the production of AI chips, is anticipated to sustain its robust performance. Additionally, investments in new semiconductor nodes, particularly those at TSMC, like N2/A16, are likely to continue.
The report also highlighted potential risks beyond DRAM, including issues related to Intel (NASDAQ:INTC)'s foundry business and apprehensions over a potential overspend in China's semiconductor capacity. These factors combined could lead to a broader slowdown in expectations for the sector as the industry approaches 2026.
This adjustment by Morgan Stanley reflects a cautious outlook for ASML, considering the broader context of the semiconductor equipment market and its susceptibility to shifts in spending patterns within the industry.
In other recent news, ASML Holding NV has been the focus of several other analyst revisions. Citi has revised its price target for ASML, reducing it to €1,150 from €1,250, while maintaining a Buy rating. This adjustment was influenced by a slower industry cycle and reduced capital expenditure forecasts from Intel.
However, Citi's growth projections for ASML remain robust, supported by potential growth in artificial intelligence and improvements in tool productivity and lithography intensity.
Deutsche Bank (ETR:DBKGn) also cut its target for ASML to €950, citing a predicted 22% decline in China sales by 2025 due to challenges in the semiconductor market. Despite this, Deutsche Bank maintained its Buy rating. Similarly, BofA Securities revised its price target due to lowered earnings projections for 2025 and 2026, but also maintained a Buy rating.
Meanwhile, UBS downgraded ASML's stock from Buy to Neutral, and Barclays (LON:BARC) upgraded it from Equal Weight to Overweight. These adjustments were in response to recent developments, including increased export controls on ASML's chipmaking equipment by the Netherlands, aligning with US restrictions, and dissatisfaction expressed by China towards these controls. These are the latest developments surrounding ASML Holding NV.
InvestingPro Insights
In light of Morgan Stanley's recent rating adjustment for ASML Holding NV, it's essential to consider the company's financial metrics and market performance. According to InvestingPro data, ASML has a market capitalization of $324.52 billion and trades at a high earnings multiple with a P/E ratio of 43.07. Despite a slight revenue decline over the last twelve months, ASML maintains a strong gross profit margin of 51.44% and an operating income margin of 30.66%, showcasing its ability to generate significant profits from its sales.
InvestingPro Tips suggest that ASML is a prominent player in the Semiconductors & Semiconductor Equipment industry, which aligns with Morgan Stanley's acknowledgment of the company's critical role in semiconductor manufacturing. Additionally, ASML has demonstrated its commitment to shareholders by maintaining dividend payments for 18 consecutive years, with a recent dividend growth of 8.84%. While the stock has experienced a downturn over the last month, with a one-month price total return of -14.94%, InvestingPro notes that ASML has been profitable over the last twelve months and analysts predict profitability for this year as well.
For investors seeking a deeper understanding of ASML's financial health and market position, InvestingPro offers a range of additional tips. There are currently 14 more InvestingPro Tips available, which can provide valuable insights into ASML's valuation multiples, debt levels, and long-term performance trends. These insights can be accessed at https://www.investing.com/pro/ASML, offering a comprehensive analysis for those considering investment decisions in the semiconductor sector.
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