ASML Holding NV Shares Slide After Morgan Stanley Downgrade

Shares of ASML Holding NV (AS:ASML) fell on Thursday following Morgan Stanley’s removal of the stock from its “Top Pick” list for European semiconductors.

At 5:42 am (0942 GMT), ASML was trading 1.6% lower at €724.30.

The downgrade, along with a revision of the company’s price target, has raised concerns about ASML’s near-term performance amidst challenges in the global semiconductor sector.

Morgan Stanley’s decision came after a comprehensive reassessment of ASML’s growth trajectory. Even though the brokerage maintained an “overweight” rating for the stock, it lowered its price target from €1,000 to €925, indicating worries about a potential slowdown in sales and profits over the next few years.

According to Morgan Stanley analysts, “We trim our estimates for 2025/26 given the cuts we expect as a knock-on impact from Intel (NASDAQ:INTC). All in, we trim c.€600m given such a pullback in spend at the large IDM chipmaker.”

The expectation of lower demand for ASML’s advanced Low NA EUV systems, essential for producing leading-edge semiconductors, is a contributing factor to this outlook.

Several risks were identified by Morgan Stanley that could impact ASML’s forecast. A significant concern is the anticipated slowdown in Intel’s spending. As one of ASML’s biggest customers, Intel’s reduced investment is likely to significantly influence ASML’s revenue growth.

While ASML’s High NA EUV systems signal the future of semiconductor manufacturing, analysts express concerns about how quickly these systems will be adopted. Although Intel is committed to these advanced tools, other major players like TSMC are anticipated to postpone their orders for High NA systems until later in the decade, creating uncertainty regarding when ASML will recognize revenue from these critical systems.

ASML’s exposure to China, a vital market for the company, adds another layer of complexity. While the company benefits from China’s investments in semiconductor capacity, geopolitical tensions between the U.S. and China could pose threats, especially with potential new export restrictions.

Morgan Stanley highlighted the risk that U.S. regulations could affect ASML’s revenue from China, particularly in its installed base management business, which involves maintenance and upgrades for its systems. This, in conjunction with the uncertainty surrounding demand from Chinese semiconductor manufacturers, further complicates ASML’s growth prospects.

Cyclical trends within the semiconductor industry are additional risks to consider. ASML has profited from the high demand for advanced chips, particularly those used in AI and other leading-edge technologies.

However, Morgan Stanley cautioned that the stock remains susceptible to shifts in market sentiment, especially as concerns grow over a potential slowdown in semiconductor demand following a period of rapid growth. Like its competitors, ASML may see fluctuations in order volumes as the industry adapts to evolving macroeconomic conditions.

Despite these challenges, Morgan Stanley holds a positive view on ASML’s long-term potential, stating, “We still view ASML as a high-quality name in global semis, exemplified by a growing backlog, dominance in the critical EUV lithography space, and improving drop-through rate on additional sales.”

Due to a reassessment of risks and rewards, the firm revised its valuation method by applying a lower multiple to reflect the company’s near-term challenges, resulting in the reduced price target of €925.