Long bail on ASML, potentially overrated AI warning

(Bloomberg) — UBS Group AG ended its two-year bullish call on European tech darling ASML Holding NV, warning that the earnings potential of artificial intelligence is becoming overblown.

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Analysts at the bank downgraded the stock to hold from buy after the share price has risen more than 60% since UBS first implemented the buy rating in August 2022.

“Investors will likely be less willing to pay the premium multiple that ASML has commanded in recent years,” even though the firm is “one of the best fundamental stories in the European tech sector,” UBS analysts including Francois-Xavier Bouvignies said. he wrote in a note published on Wednesday.

The downgrade mirrors broader market fears that the mania surrounding artificial intelligence has gone too far. Shares of Nvidia Corp. they fell 9.5 percent on Tuesday, accelerating a slide that began last week and sending ripples through the broader semiconductor space. ASML shares fell as much as 7.1% on Wednesday, hitting a one-month low.

ASML is still rated a buy by more than three-quarters of Wall Street analysts who follow the company, with only one recommending a sell on the stock, according to data compiled by Bloomberg.

Revenue growth at the Dutch chip equipment maker is likely to slow after 2025, UBS analysts said. As the industry shifts to a new transistor architecture, companies making logic chips will prioritize spending elsewhere over ASML’s lithography tools, they said.

Income prospects

Stockpiles of ASML’s flagship machines by memory chip makers may not persist beyond 2025 as capacity built now can be repurposed for future products, according to analysts. Taken together, AI-related demand will likely account for only 10 percent to 15 percent of the company’s revenue over the next few years, they said.

ASML is expected to outline its long-term outlook at its investor day on November 14.

Separately, Dutch newspaper Eindhovens Dagblad reported that ASML is delaying current orders for some car parts with its suppliers, citing unidentified people close to the company. A spokeswoman for ASML said the company stood by its comment it made with the presentation of the second quarter results.

(Add the Eindhovens Dagblad report and the company’s response in the last paragraph.)

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