UBS Upgrades ASML, Predicts Inflection Point for Chipmaker by 2027

What's Happening?

UBS has upgraded ASML, a Netherlands-based chipmaker, from a neutral to a buy rating. Analyst Francois-Xavier Bouvignies expressed optimism about ASML's lithography business, particularly its extreme ultraviolet (EUV) lithography machines, which are essential for advanced semiconductor production. The upgrade is based on the anticipated increase in lithography intensity by 2027, driven by the production of the TSMC A14 logic node. ASML's largest customer, TSMC, is expected to boost demand for these machines. Despite a 20% decline in stock performance over the past year, the market is expected to overcome challenges related to the Chinese market and resume growth.

Why It's Important?

The upgrade signifies a positive outlook for ASML, which plays a crucial role in the semiconductor industry. The anticipated increase in lithography intensity suggests a potential rise in demand for ASML's EUV machines, which could lead to significant growth for the company. This development is important for the semiconductor industry, as it relies heavily on ASML's technology for producing advanced chips. The upgrade also reflects Wall Street's growing confidence in ASML's ability to deliver strong earnings growth, with consensus earnings per share revisions climbing between 20% and 30% over the past year.

What's Next?

ASML is expected to continue its work on the A14 production ramp, which will enhance the adoption of its High NA technology. This could contribute to the company's long-term growth. The market is likely to look beyond the anticipated weak performance in 2026 and 2027, focusing on ASML's potential to deliver a 20% compound annual growth rate in earnings per share from 2026 to 2030. Stakeholders in the semiconductor industry will be closely monitoring ASML's progress and its impact on the industry's technological advancements.

Beyond the Headlines

The upgrade highlights the strategic importance of ASML's technology in the global semiconductor supply chain. As geopolitical tensions and market dynamics evolve, ASML's ability to maintain its technological edge and meet increasing demand will be crucial. The company's role in enabling advanced semiconductor production underscores its influence on technological innovation and economic growth.