Key Points
ASML's stock has pulled back after recently reaching a peak, and TD Cowen analyst Krish Sankar views this as a "very attractive" entry point for investors. His optimistic outlook on the company stems from the compression of valuation metrics and the strong long-term expansion potential associated with the growing demand for AI semiconductors.
The company's shares traded in the U.S. have dropped 7% over the past month. This decline comes as market participants gradually shift funds toward other AI-related chip stocks, despite ASML's advanced lithography equipment orders hitting record highs.
ASML occupies a strategic position in the semiconductor manufacturing ecosystem. The Dutch company maintains an effective monopoly on extreme ultraviolet (EUV) lithography technology, which is crucial for producing cutting-edge microchips. Currently, no other competing suppliers can offer similar systems.
However, Sankar believes this dynamic is about to change. The upcoming new generation of logic semiconductors and memory technologies, particularly DRAM, will require additional EUV layers in the manufacturing process. He emphasizes that the impact on the memory sector remains "underestimated" by investors.
High-NA EUV Technology: An Emerging Growth Catalyst
TD Cowen's financial model predicts that 60 lithography systems will be shipped by 2026, with that number expected to rise to 68 by 2027 as shipments of high-NA equipment double and older platforms transition to upgraded versions.
Sankar has given ASML's stock traded in Amsterdam a "buy" rating, with a target price of €1,500, based on a 48x multiple of its expected earnings per share in 2027. ASML's stock price in Europe closed at €1,165 on Thursday, while its American Depositary Shares fell 1.4% in pre-market trading to $1,347.40.
AI Capital Expenditures Support Long-Term Demand
Amazon, Microsoft, Google, and Meta are expected to collectively invest nearly $600 billion in capital expenditures by 2026, with a significant portion allocated to AI infrastructure investments.
ASML also generates predictable recurring revenue. Maintenance and service contracts for its deployed equipment are expected to account for about 25% of total revenue in 2025.
ASML's current forward P/E ratio is 39.8, exceeding its 10-year average of 35.8. The company's market capitalization is approximately $527 billion.