After yesterday’s interest rate-fueled surge, another analyst is stepping to the sidelines.
Shares of ASML Holdings (ASML -3.75%) were falling on Friday, down as much as 4.6% in early-morning trading, before recovering to a 3.4% decline as of 12:45 PM EDT.
After Wednesday’s 50-basis point interest rate cut spurred a rally on Thursday, ASML gave back most of those gains today, as one analyst moved to the sidelines on the company’s shares.
Morgan Stanley moves to equal weight
Semiconductor analysts at Morgan Stanley downgraded ASML shares to equal weight from overweight on Friday, and they lowered the firm’s price target to 800 euros from 925 euros.
Investors should note that while U.S.-traded shares on the Nasdaq trade at around $800 per share, ASML shares trade at just 716 euros each in Europe today. Therefore, even the downgraded price target amounts to more than 10% upside.
2025 is supposed to be a strong year for ASML, which has a monopoly on the extreme ultraviolet lithography (EUV) technology necessary to make leading-edge semiconductors and memory. The Morgan Stanley analysts still see a strong 2025, but one maybe not quite as strong as one might expect, citing three weaker links today: DRAM memory, China, and Intel demand.
Intel recently announced it would be pulling back on capital expenditures next year amid a weaker-than-expected PC market. While high-bandwidth memory demand for AI is soaring, analysts have become incrementally more cautious on other legacy DRAM applications like PCs and smartphones. Finally, the analysts are skeptical ASML will be able to maintain less-advanced DUV machine sales to China, given ongoing economic weakness in the country.
ASML is still a strong long-term holding
While the analysts turned more cautious on 2025, ASML is still extremely well-positioned for the long term. Even the Morgan Stanley analysts said in today’s note that they aren’t too bearish, cautioning, “History warns against being too negative on ASML before an order book cycle has hit peak.”
This has been a strange semiconductor cycle, with stocks correcting this summer amid strong AI spend, but as other parts of the industry appear to be coming out of a downturn. It’s probably best for investors to focus on the long-term outlook for a compounder like ASML, and the company will give more color on that front at its analyst day in November.
Billy Duberstein and/or his clients have positions in ASML and Intel and has the following options: short September 2024 $19 puts on Intel. The Motley Fool has positions in and recommends ASML. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
