ASML dips after Morgan Stanley cuts rating to Equal-weight

ASML’s (NASDAQ:ASML) stock fell about 2% premarket on Friday after Morgan Stanley downgraded the shares to Equal-weight from Overweight.

The firm also reduced the price target on the shares of The Netherlands-based company to €800 from €925.

Analysts led by Lee Simpson noted that they see a balancing risk/reward as indicative of a late cycle share price dynamics. They added that risks include weak Intel capacity additions, a slowing dynamic random access memory, or DRAM, cycle (2025) and ongoing uncertainties surrounding China demand.

In Europe, the analysts see semiconductor capital equipment names such as ASML exposed to a spending slowdown. DRAM is a part of the spend for ASML. If this weakens, then it can affect earnings growth in 2025/26, the analysts noted.

Elsewhere, the analysts expect High Bandwidth Memory, or HBM, part of DRAM spend, will remain robust given its use in still-ramping AI chips, as will the spending on new nodes, especially N2/A16 at Taiwan Semiconductor Manufacturing (TSM).

The analysts noted that despite this, the risks of a slowdown in expectations could be looming — it could be that investors may have to wrestle with weakness not just with DRAM but also with Intel (INTC), especially in foundry, and the growing concern that China semiconductor capacity overspend will slow as they look to 2026.

China had accounted for 49%, or about €2.33B, of the total net system sales, which were €4.76B for the second quarter of 2024, according to ASML.

In addition, Simpson and his team said that as the broader semi cycle begins to turn, investors will shift focus away from the recent de-rating and instead look to earnings for proof of potential weakness.

The analysts noted that they have already trimmed estimates in line with the recent cuts they have seen at Intel and talk to risks around possible China restrictions. The analysts now have reduced some of their DRAM ultraviolet lithography, or EUV, machine shipments in 2025/26 but not materially as they still expect strength for HBM builds at least.

Simpson and his team think the valuation may have already peaked and the recent de-rate is indicative of late cycle share price action. Despite this, they still see ASML as a growth cyclical name (grows cycle-on-cycle) with high-quality earnings, as history warns against being too negative on the company before an order book cycle has hit peak.

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 also Hold, but the average Wall Street analysts’ rating is more positive with a Buy.