On Wednesday, UBS downgraded ASML Holding NV (LON:0QB8) (AS:ASML:NA) (NASDAQ: ASML) stock from Buy to Neutral and lowered the price target to €900 from €1,050. The adjustment comes amid expectations of a deceleration in the company's earnings per share (EPS) growth rate.
While ASML has been a standout in the European technology sector, UBS anticipates the EPS to expand at a compound annual growth rate (CAGR) of 13% from 2025 to 2030, compared to the 24% CAGR observed from 2018 to 2025.
The firm suggests that the anticipated growth rate justifies a "normalization" of ASML's stock multiples relative to its peers and historical averages. Despite a solid outlook for 2025, which implies robust orders for the third quarter of 2024, the focus is expected to shift towards the 2026/27 period. UBS forecasts a 5-10% downside to consensus estimates for earnings before interest and taxes (EBIT) in the coming years.
Several factors contribute to this more cautious outlook. UBS predicts a plateau in lithography intensity within both logic and memory sectors, with lithography's share of total wafer fab equipment spending projected to drop from a 30% peak in 2025 to 25% in 2027. This decrease is partly due to an architectural shift to gate-all-around (GAA) technology and a potential slowdown in extreme ultraviolet (EUV) layer additions in DRAM manufacturing.
Additionally, UBS estimates that revenues from artificial intelligence (AI) end-uses may not be enough to counterbalance these trends, contributing only 10-15% of ASML's revenues over the next three to five years. The firm also notes potential risks in the Chinese market, where lithography spending is expected to normalize.
China, accounting for 35% of ASML's revenues in the 2024 estimate, could face additional export controls that impact sales, particularly to memory customers. UBS anticipates a 24% year-over-year decrease in China revenues in 2025 and an 11% drop in 2026.
In other recent news, ASML Holdings experienced a notable 1.3% rise in the technology sector. However, the company's third-quarter revenue guidance fell short of consensus estimates, according to Wolfe Research. The firm maintained an Outperform rating on ASML, suggesting the revenue shortfall was due to timing issues and projecting significant revenue improvement in the second half of 2024.
In the meantime, Barclays (LON:BARC) has upgraded ASML Holding NV stock from Equalweight to Overweight, increasing the price target to €1,150 from the previous €930. Barclays foresees a 15% year-over-year growth for ASML in 2026, following a projected 27% growth in 2025. The firm also anticipates continued double-digit growth for ASML in the subsequent years, 2027 and 2028.
On the other hand, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) recently reported financial results that exceeded consensus forecasts for both revenue and earnings. Despite a slight miss on gross margins for the second quarter of 2024, Needham reaffirmed its Buy rating on TSMC shares, maintaining a steady price target of $210.00.
In other recent developments, Prime Minister Dick Schoof of the Netherlands expressed optimism regarding discussions with the United States over new restrictions on the export of semiconductor equipment to China. The outcome of these talks could have significant implications for the semiconductor industry, particularly for companies like ASML that are central to the global supply chain.
Lastly, investors are closely monitoring the release of the euro zone's consumer price index data, which could influence the European Central Bank's monetary policy decisions. Among specific stocks, Jyske Bank, a Danish financial institution, reported a 2.1% gain following the release of its first-half results.
InvestingPro Insights
As UBS adjusts its stance on ASML, real-time data from InvestingPro provides further context to the company's financial health and market position. With a market capitalization of $323.91 billion and a high P/E ratio of 43.37, ASML is trading at a significant earnings multiple, indicating that investors have high expectations for the company's future performance. This aligns with UBS's observation of the need for a normalization of ASML's stock multiples.
The company's robust gross profit margin of 51.44% over the last twelve months as of Q2 2024, and an operating income margin of 30.66%, reflect its strong position within the Semiconductors & Semiconductor Equipment industry, a factor also highlighted by InvestingPro Tips. Additionally, ASML's ability to maintain dividend payments for 18 consecutive years, with a recent dividend yield of 0.66%, suggests a commitment to returning value to shareholders amidst its financial performance.
InvestingPro Tips further reveal that analysts predict ASML will be profitable this year, with a history of profitability over the last twelve months, and a strong return over the last decade. For readers interested in a deeper dive into ASML's financial metrics and future outlook, InvestingPro offers additional tips and data points to consider. There are 13 more InvestingPro Tips available for ASML that provide insights into the company's valuation multiples, debt levels, and analyst revisions, which can be found at https://www.investing.com/pro/ASML.
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