ASML Surpasses TSMC as Top Semiconductor Pick for Mizuho Analysts

Investing.com — Mizuho analysts have shifted their favorite semiconductor stock from TSMC to ASML, citing a compelling risk-reward opportunity due to ASML’s underperformance.

In a recent note, Mizuho highlighted that while TSMC shares have experienced a 16% increase in September, ASML has lagged significantly with only a 0.8% gain.

Mizuho now considers ASML as their top pick for year-end gains, presenting it as an attractive long-term investment.

“ASML is my new favorite single semi long into year-end,” a Mizuho analyst stated, noting the stock’s underperformance compared to the broader semiconductor sector and major players like Nvidia and TSMC. The analyst sees a “compelling risk-reward with limited downside” for ASML.

The report indicates that market sentiment surrounding ASML has suffered due to concerns over Intel’s capital expenditure cuts and risks related to China restrictions. However, Mizuho views this as a buying opportunity since negative sentiment has already been factored into ASML’s stock price.

Looking ahead, Mizuho anticipates stable third-quarter results for ASML in October and considers the company’s investor day on November 14 as a crucial event. They noted that ASML’s management is not expected to lower its long-term revenue targets for 2025, estimated between €30-40 billion.

According to Mizuho, “I sense buyside now expects €32-33 billion at best,” suggesting that even a slight reduction in estimates could pave the way for a stock rally.

The analysts also believe ASML is well-positioned for a rebound in lithography tool spending, forecasting that the company’s valuation could increase back to a 30-32 forward P/E range.

With EPS estimates for 2024 already decreasing, Mizuho sees limited downside and significant upside potential for ASML.

“ASML valuation can expand back more towards 30-32 forward P/E range vs the compressed level of 26-27 right now,” the Mizuho analyst concluded.