ASML reiterated as Citi’s Top Pick despite falling out of favor with investors. Via Investing.com

ASML (AS:) has seen a shift in investor sentiment in recent months. Despite the recent decline in popularity among investors, analysts at Citi Research in a note dated Wednesday remain firm on the company’s bullish outlook.

ASML continues to maintain its place as Citi’s top choice in the European technology sector, with the bank reaffirming a ‘buy’ rating and highlighting strong growth potential.

While there are short-term headwinds, Citi analysts point to the company’s unique positioning and robust long-term growth prospects.

In the summer of 2024, ASML faced a decline in investor confidence due to a weaker semiconductor cycle and capital spending cuts by Intel, one of ASML’s key customers.

These factors dampened expectations for the company’s performance in 2025, particularly in terms of revenue and profit growth.

Some investors expressed concern, pushing their 2025 revenue expectations toward the lower end of the company’s guidance range.

“We are lowering our 2025E revenue estimate to €36bn, just above the midpoint of the €30-40bn range, to account for a slower cycle and Intel pushback,” the analysts said.

However, analysts at Citi believe that this negative sentiment is exaggerated. They lowered their 2025 sales estimate for ASML by 5%, as opposed to the larger changes suggested in some conversations with investors.

Citi’s view remains positive on ASML’s long-term outlook, citing the company’s leadership in advanced semiconductor manufacturing technology as a crucial differentiator.

The semiconductor industry’s growing demand for high-end logic chips, particularly from key players such as Taiwan Semiconductor Manufacturing Company (TSMC), continues to benefit ASML, which holds a dominant position in the extreme ultraviolet (EUV) lithography system market. .

Citi expects ASML’s revenue to reach 36 billion euros in 2025, up 30%, despite challenges from Intel’s spending cuts and a slower business cycle.

ASML’s growth is expected to outpace its peers in the semiconductor equipment industry, with its tooling revenue expected to grow 34%, well ahead of the competition.

This growth will be driven by ASML’s exposure to leading-edge logic demand, where its high-value EUV systems play a critical role in enabling advanced chip production.

Citi also points to two key elements driving ASML’s growth, namely increased lithography intensity and continued improvement in tooling productivity.

As chip makers push the limits of semiconductor technology, demand for ASML’s EUV systems is expected to grow.

“Beyond the short term, we believe ASML’s long-term outlook is intact, with gains from AI and strong growth in tool productivity/lithography intensity,” the analysts said.

In addition, ASML is continuously improving the productivity of its tools, making them even more attractive to chipmakers looking to increase production while reducing costs. This focus on innovation positions ASML as a clear leader in its field.

“We expect the combination of healthy Q3 orders (est. €5.5bn) and a positive CMD to lead to improved sentiment and valuation, which at 23×2025 is near troughs,” the analysts said.

Citi analysts anticipate that CMD will provide more clarity on ASML’s revenue targets for 2030, particularly as demand for AI chips continues to expand.

Despite the current dip in investor sentiment, Citi remains bullish on ASML’s valuation. The company’s stock is currently trading at a forward price-to-earnings (P/E) ratio of 23x for 2025, which is near historic lows.

Citi adjusted its price target for ASML from €1,250 to €1,150, but that still represents a potential upside of more than 60% from current levels. According to Citi, this presents a compelling buying opportunity for investors, especially those with a long-term perspective.