ASML shares fall as Morgan Stanley downgrades Investing.com

Analysts at Morgan Stanley downgraded shares of ASML Holding ( ASML ) from Overweight to Equal-weight and cut their price target from €925 to €800, citing “late-cycle dynamics” that could hurt the outlook for earnings growth company in 2025 and 2026.

ASML shares were down more than 1 percent in premarket trading on Friday.

The downgrade reflects concerns about several headwinds, including a possible slowdown in semiconductor spending.

About 46% of ASML’s system sales in the second quarter of 2024 are expected to come from DRAM, a segment that could weaken according to Morgan Stanley’s analysis. This anticipated decline in DRAM spending is part of a broader fear of a slowdown in the semiconductor cycle.

On the other hand, Morgan Stanley recognizes areas of strength for ASML, including high-bandwidth memory (HBM) used in AI chips and spending on new technology nodes, particularly at TSMC ( TSM ).

However, the firm also points to risks such as a slowdown in Intel’s (NASDAQ: ) foundry sector and concerns about China’s spending on semiconductor capacity as we approach 2026.

ASML’s valuation has been a focus for investors, with the stock’s price-to-earnings ratio peaking at 30-35x in July 2024 and ASML’s recent downgrade “indicative of lagging share price action,” analysts noted. .

They argue that ASML is a cyclical growth company with high-quality earnings, but caution against overly optimistic expectations before the order book cycle peaks.

Looking ahead, Morgan Stanley sees a possibility for ASML’s rating to improve by November 2024, which coincides with the company’s Capital Markets Day. However, any revaluation is expected to be limited to mid-cycle multiples, given the anticipated risks to 2026.