Why ASML stock went up today

Actions of ASML (ASML 5.70%) were among the gainers in the artificial intelligence (AI) sector as the maker of lithography systems that are used to make semiconductors rose on Wednesday on the Federal Reserve’s interest rate cut.

The company also received a positive analyst rating, reiterating an outperform rating on the stock. As of 2:06 pm ET Thursday, the stock was up 6.5% on the news.

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ASML is getting a much needed boost

While many of its peers in the chip sector have risen this year, ASML has struggled with a cyclical slowdown in the semiconductor manufacturing equipment market and recent news of export restrictions in China, a key market.

Shares are still down nearly 25% from their July peak even after today’s gains.

However, lower rates should help propel the company’s expected rebound. Because ASML relies on selling a relatively small number of very expensive cars, it is particularly sensitive to the economy and interest rates. Lower rates make it easier for companies to borrow to buy their cars. and a rate cut tends to boost the overall economy, which should also encourage demand for its semiconductor equipment.

While tech stocks and chip stocks were broadly higher today, ASML’s gain outpaced even the 5% gain of VanEck Semiconductor ETF.

Barclays maintained an overweight rating on the stock, although it lowered its price target from 1,150 euros ($1,279) to 1,100 euros ($1,224) to reflect the stock’s recent slide and updates to its estimates. Barclays also said it would buy the stock on any weakness.

Can ASML keep winning?

Interest rates are expected to continue to decline this year and next, providing a tailwind for ASML. The company is also calling for a rebound in demand as new foundries come on stream.

With the stock still down significantly from its previous peak, there is substantial upside if rates continue to fall and momentum builds in the business.