UBS Downgrades ASML: Semiconductor Industry Faces Potential Slowdown

UBS just downgraded critical chip firm ASML on expectations of a demand 'normalization'

Critical chip equipment supplier ASML is set to face softer demand from buyers of its products in the coming years -- and the artificial intelligence boom won't be enough to offset these downside risks, according to analysts at investment bank UBS . In a fresh research note, UBS downgraded ASML to "neutral" and cut its price target on the stock to 900 euros ($997.16) from 1,050 euros previously, stating that it expects to see a "plateau in litho intensity," or the percentage of cost associated with lithography tools versus other wafer fabrication equipment tools, in both logic and memory chips. Part of the cause for this plateau, UBS analysts noted, is a trend of "EUV tool reuse" among memory chipmakers, which are using existing inventory of ASML EUV machines they already own to produce new chips, rather than buying fresh equipment. Such memory chip makers include Samsung and Nvidia supplier SK Hynix. "Despite ASML being one of the best fundamental stories in the European tech sector with strong management execution, we downgrade the stock to Neutral as we expect EPS [earnings per share] to grow at a 13% CAGR [compound annual growth rate] in 2025-30E vs 24% in 2018-25E which we believe justifies the "normalization" of multiples relative to peers and history," analysts at the bank said in the note, which was published Wednesday. ASML is behind a key technology involved in chip manufacturing known as EUV, or extreme ultraviolet radiation. The company's EUV lithography machines generate a short wavelength of light in large quantities to print small, complex designs on microchips. UBS expects lithographic tools' share of of total wafer fabrication equipment spending coming down from a 30% peak in 2025 to 25% in 2027 before increasing again with the new generation of so-called "High NA" EUV tools beyond 2028. But the investment bank said in its note Wednesday that ASML's machines are set to face a slowdown in demand, in part due to an "architecture shift" to gate all around architecture, or GAA, as well as "some slowdown in EUV layer additions in DRAM," or Dynamic Random Access Memory. GAA architecture refers to a transistor design that places a gate on all four sides of the channel of an electric current flow. This is meant to improve a chip's performance and power efficiency. DRAM is a type of memory chip that's needed for a computer to function. Meanwhile, AI end-use revenues -- which it says will account for only 10% to 15% of group revenues in the next three to five years -- "may not be sufficient to offset" these demand normalization factors, UBS said. It added that it also sees spending on lithographic tools in China overall normalizing due to the risk of further export controls imposed by the U.S. and the Netherlands. An ASML spokesperson declined to comment on the downgrade when contacted by CNBC. Shares of the company were down more than 6% Wednesday, alongside a raft of other chip stocks , following a deep slide in Nvidia shares Tuesday . Nvidia's share price drop, which erased around $279 billion from its market capitalization, was the single biggest one-day market cap drop for a U.S. stock in history.

ASML dips after UBS downgrades seeing transition years ahead (NASDAQ:ASML)

The firm lowered the price target on the shares to €900 from €1,050. Analysts led by Nicolas Gaudois said that despite ASML being one of the best fundamental stories in the European tech sector with strong management execution, they have downgraded the stock as they expect EPS to grow at a 13% compound annual growth rate, or CAGR, in 2025-30 versus 24% in 2018-25 which they believe justifies the "normalization" of multiples relative to peers and history. Whilst there remains some short-term upside potential from the 2025 outlook (implying strong third quarter 2024 orders), the analysts think the narrative will begin to shift to 2026/27, where they see downside to EBIT consensus. The analysts said the downgrade was also due to -- a new proprietary AI model including both GPU and HBM lithography demand, which shows AI will represent only 10% to 15% of revenue in 2025-27; an updated bottom-up model for EUV, now with the insertion of High NA demand by customer; a China lithography intensity analysis showing that the region is likely overspending in litho relative to other equipment; and a new memory lithography model, showing reuse impacting demand. UBS expects ASML to see €50B revenue in 2030 versus consensus €57B. ASML (ASML) has a Hold rating at Seeking Alpha's Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors' average rating is more positive with a Buy, and so is the average Wall Street analysts' rating, Buy.

UBS downgrades ASML stock on slowing EPS growth outlook By Investing.com

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. 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.

AI-Linked US Semiconductor Stocks Brace For Red Wednesday As Analyst Downgrades Dutch Chipmaker ASML - ASML Holding (NASDAQ:ASML)

ASML shares fell 6.1% in Amsterdam and 4.4% in U.S. premarket trading after the downgrade. Following Tuesday's bloodbath in the U.S. semiconductor sector, there seems to be no relief in sight as Swiss investment bank UBS downgraded ASML Holding NV ASML from Buy to Neutral Wednesday, slashing its price target on the Dutch chipmaker due to expected slower earnings growth in the coming years. Despite ASML being recognized as one of Europe's top technology companies, UBS analysts led by Francois-Xavier Bouvignies said "investors will likely be less willing to pay the premium multiple that the Dutch chipmaker has commanded over the last few years." UBS first rated ASML as a Buy in August 2022 and maintained it until now. In April 2024, the bank raised the 12-month price target for the company from 880 euros ($972.87) to 1,050 euros. On Wednesday, UBS lowered the price target to 900 euros. The downgrade comes as UBS anticipates weaker earnings growth driven by a slowdown in demand for advanced semiconductor chips. Shares of ASML dropped 6.1% in Amsterdam trading, while U.S.-listed ADRs were 4.4% lower during premarket trading in New York. Related Link: ASML's China Business In Crosshairs Of Dutch Government: Semiconductors At Center Of East-West Tensions Slower Growth Ahead For ASML? UBS forecasts that ASML's earnings per share will grow at a compound annual growth rate of 13% between 2025 and 2030, down significantly from the 24% CAGR seen from 2018 to 2025, as Proactive Investors reported. While the bank predicts strong orders in 2025 could temporarily boost ASML's performance, it warns of potential downside risks in 2026 and 2027. The demand for lithography technology, ASML's specialty, is expected to plateau as the semiconductor industry faces declining demand for advanced chips used in logic and memory production. UBS said that while ASML's revenue from artificial intelligence applications will increase, AI will account for only 10%-15% of the company's total sales over the next three to five years, not enough to offset declines in other areas. Implications For US Semiconductors: Nvidia, Intel, AMD In Focus The ripple effect from UBS's ASML downgrade and broader concerns about the semiconductor sector continued to weigh on U.S. semiconductor stocks. The premarket session on Wednesday showed little sign of recovery after the previous day's selloff. The VanEck Semiconductor ETF SMH fell 1.4% at 8:30 a.m. ET, following a 7.5% drop on Tuesday -- the ETF's largest single-day decline since March 18, 2020. Similarly, the iShares Semiconductor ETF SOXX was down 1.4% in premarket trading after a 7.6% decline the previous day. Nvidia Corp. NVDA continued its slide, falling 2% in premarket trading after suffering a dramatic 9.5% drop on Tuesday, wiping out about $280 billion in market capitalization, the largest single-day loss in its history. Intel Corp. INTC was down 2.9%, compounding the 8.8% decline it experienced on Tuesday. The sharp drop has fueled speculation that Intel could be removed from the Dow Jones Industrial Average, adding more pressure on the stock. In contrast, Advanced Micro Devices AMD showed signs of resilience, rising 1.8% to $139.37 in premarket trading. The gain follows the company's announcement of former Nvidia executive Keith Strier as its new senior vice president of global AI markets, a move seen as a strategic push into the booming AI space. Chart: Nvidia Wipes Out $280B In A Single Day, The Worst Market Cap Loss Ever Read Next: No Respite For US Stocks As Futures Sag, VIX Spikes 10%, Bitcoin Slides: Strategist Warns Of Further Pain In September, But Recommends Buying Dip Photo via Shutterstock. Market News and Data brought to you by Benzinga APIs

Why ASML Stock Is Down Today | The Motley Fool

One analyst thinks sales of the company's chipmaking machines are at a cyclical peak. ASML Holding (ASML -3.51%) has been among the semiconductor sector companies enjoying rising sales thanks to the surge in artificial intelligence (AI) spending. But its stock has been on the decline, and shares dropped again Wednesday morning. ASML last reported quarterly earnings on July 17, and the stock is down by nearly 25% since then. That includes a 3.9% decline as of 11:55 a.m. ET Wednesday. That latest drop came after a Wall Street analyst who was previously bullish on the stock publicly changed his stance. ASML supplies the semiconductor sector with the lithography machines it needs to manufacture computer chips -- and it's the only maker of the extreme ultraviolet (EUV) lithography machines necessary to produce the most advanced chips, which are flying off the shelves as the demand for computing power for AI training and other needs surges. Over the last year, ASML's stock price rose as its revenue jumped by almost 25% since the start of 2023 on a trailing-12-month basis. But in a new research note, UBS analyst Francois-Xavier Bouvignies downgraded his recommendation for ASML from buy to neutral (hold), and wrote that he thinks shares won't move as high as he previously expected. While Bouvignies still sees some near-term potential upside from ASML's strong order book, he believes that the current situation may be a short-term peak for the business. The analyst believes the consensus outlooks for earnings over the next one to two years are too high, and asserts that now is not the time to be a buyer of ASML's stock. ASML's lithography systems may be vital hardware for semiconductor makers that are boosting output. But many customers may now have the production capacity that they need, which could mean a coming drop in new orders. The future of the Chinese market is also a big question for ASML and others in the industry. Bouvignies expects that Chinese spending on chipmaking equipment will drop meaningfully in both 2025 and 2026. Additionally, the Chinese government has already threatened to cut off ASML in response to new U.S. and Dutch restrictions on tech exports to China. Investors are likely to see more volatility in the chip sector and for ASML shares specifically. But investors can still typically ignore short-term noise when it comes to long-term holdings.