ASML Faces Challenges as Morgan Stanley Downgrades Stock Amid DRAM Slowdown Concerns

Morgan Stanley has more 'bad news' for Europe's biggest chip company - Times of India

Global semiconductor equipment giant ASML is facing increasing pressure from Wall Street analysts, who are downgrading their earnings estimates for the company. This latest wave of pessimism comes in the wake of a slump in the memory chip market and growing concerns over demand from Chinese chipmakers and Intel. ASML is among the Europe's largest chip companies. Morgan Stanley joined UBS and Deutsche Bank in cutting their targets for ASML's share price, following a significant drop in the company's stock price during the summer months.Analysts cited potential weakness in both the DRAM market and Intel's business, as well as concerns about China's semiconductor capacity overspend. Intel and slowness in China business hurt Intel's recent decision to pause its expansion plans in Germany for two years has further dampened sentiment surrounding the semiconductor industry. While ASML is expected to benefit from strong demand for its advanced EUV tools from TSMC in 2025, analysts caution against being overly pessimistic about the company's long-term prospects. Deutsche Bank analysts raised concerns about ASML's China business, which accounted for nearly half of its sales in the second quarter. They suggested that the outlook for spending in China has deteriorated due to overcapacity, and there is a risk that Chinese memory chip makers could be added to the U.S. Entity List, restricting ASML's ability to sell to them. Despite these challenges, Citi remains bullish on ASML, naming it as their top tech pick in Europe. Analysts expect a healthy influx of orders when the company reports its earnings on October 16th. The TOI Tech Desk is a dedicated team of journalists committed to delivering the latest and most relevant news from the world of technology to readers of The Times of India. TOI Tech Desk's news coverage spans a wide spectrum across gadget launches, gadget reviews, trends, in-depth analysis, exclusive reports and breaking stories that impact technology and the digital universe. Be it how-tos or the latest happenings in AI, cybersecurity, personal gadgets, platforms like WhatsApp, Instagram, Facebook and more; TOI Tech Desk brings the news with accuracy and authenticity.

ASML stock dips as Morgan Stanley cuts rating By Investing.com

Morgan Stanley analysts reduced their rating on ASML Holding (AS:ASML) shares from Overweight to Equal-weight, and cut the price target from €925 to €800, citing "late-cycle dynamics" that could impact the company's earnings growth prospects in 2025 and 2026. ASML shares slipped more than 1% in premarket trading Friday. The downgrade reflects concerns over multiple headwinds, including a possible slowdown in semiconductor spending. Approximately 46% of ASML's system sales in the second quarter of 2024 are expected to come from DRAM, a segment that could weaken according to Morgan Stanley's analysis. This anticipated decline in DRAM spending is part of a broader apprehension regarding a downturn in the semiconductor cycle. On the other hand, Morgan Stanley acknowledges areas of strength for ASML, including High Bandwidth Memory (HBM) used in AI chips and spending on new technology nodes, particularly at TSMC (TSM). Still, the firm also points to risks such as a slowdown in Intel's (NASDAQ:INTC) foundry sector and concerns over China's semiconductor capacity spending as we approach 2026. The valuation of ASML has been a focus for investors, with the stock's price-to-earnings ratio peaking at 30-35x in July 2024 and the recent de-rating of ASML's stock "indicative of late-cycle share price action," analysts noted. They maintain that ASML is a growth cyclical company with high-quality earnings but caution against overly optimistic expectations before the order book cycle reaches its peak. Looking ahead, Morgan Stanley sees a possibility for ASML's valuation to improve by November 2024, coinciding with the company's Capital Markets Day. However, any re-rating is expected to be limited to mid-cycle multiples, factoring in the risks anticipated for 2026.

ASML stock under pressure as Morgan Stanley warns of looming DRAM slowdown By Investing.com

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. 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.

Why ASML Holdings Fell Today | The Motley Fool

Shares of ASML Holdings (ASML -3.80%) were falling on Friday, down as much as 4.6% in early-morning trading, before recovering to a 3.4% decline as of 12:45 PM EDT. After Wednesday's 50-basis point interest rate cut spurred a rally on Thursday, ASML gave back most of those gains today, as one analyst moved to the sidelines on the company's shares. Semiconductor analysts at Morgan Stanley downgraded ASML shares to equal weight from overweight on Friday, and they lowered the firm's price target to 800 euros from 925 euros. Investors should note that while U.S.-traded shares on the Nasdaq trade at around $800 per share, ASML shares trade at just 716 euros each in Europe today. Therefore, even the downgraded price target amounts to more than 10% upside. 2025 is supposed to be a strong year for ASML, which has a monopoly on the extreme ultraviolet lithography (EUV) technology necessary to make leading-edge semiconductors and memory. The Morgan Stanley analysts still see a strong 2025, but one maybe not quite as strong as one might expect, citing three weaker links today: DRAM memory, China, and Intel demand. Intel recently announced it would be pulling back on capital expenditures next year amid a weaker-than-expected PC market. While high-bandwidth memory demand for AI is soaring, analysts have become incrementally more cautious on other legacy DRAM applications like PCs and smartphones. Finally, the analysts are skeptical ASML will be able to maintain less-advanced DUV machine sales to China, given ongoing economic weakness in the country. While the analysts turned more cautious on 2025, ASML is still extremely well-positioned for the long term. Even the Morgan Stanley analysts said in today's note that they aren't too bearish, cautioning, "History warns against being too negative on ASML before an order book cycle has hit peak." This has been a strange semiconductor cycle, with stocks correcting this summer amid strong AI spend, but as other parts of the industry appear to be coming out of a downturn. It's probably best for investors to focus on the long-term outlook for a compounder like ASML, and the company will give more color on that front at its analyst day in November.