TLDR
- ASML shares rose 2.7% after Morgan Stanley named it “Top Pick” with €1,000 price target
- DRAM technology shifts to 1c nodes requiring 5-6 EUV layers boosting demand
- Gross margin forecast at 52.3% for 2026 shows strong profitability outlook
- China demand drop expected at 15%, better than management’s 20% guidance
- Stock trading at $1,003 with $389 billion market cap following upgrade
ASML shares gained 2.7% in Amsterdam Wednesday after Morgan Stanley elevated the company to “Top Pick” status among European semiconductor stocks. The investment bank raised its price target to €1,000 from €975.
The upgrade marks a shift in sentiment after over a year of uncertainty in the chip equipment sector. Analyst Lee Simpson pointed to improving demand trends across memory and logic markets.
Trading near $1,003 in New York, ASML is up about 1.5% on the session. The company’s market capitalization stands at roughly $389 billion.
Simpson believes ASML is positioned to benefit from the DRAM wave heading into 2026. Technology transitions at major memory manufacturers are driving equipment orders.
The migration to 1c nodes from 1a and 1b nodes requires additional extreme ultraviolet lithography layers. The 1c node is expected to need 5-6 EUV layers total.
This shift increases lithography intensity and creates sustained demand for ASML’s high-end systems. Each node transition represents a new revenue opportunity for the equipment maker.
Customer Orders Building Momentum
Morgan Stanley’s recent conversations with ASML management point to stronger order visibility from Samsung and SK Hynix. Samsung hasn’t finalized all its fiscal 2026 orders yet.
This suggests potential for additional bookings as the year progresses. The incomplete order book provides upside to current revenue expectations.
Simpson expects China demand to fall 15% next year. This is less harsh than the 20% decline ASML management has forecast.
AI infrastructure spending could drive additional upside in DRAM and foundry orders. Nvidia’s recent remarks about exceptional Blackwell demand reinforce this view.
Profitability Outlook Remains Healthy
The analyst team projects gross margin of 52.3% for 2026. This represents a modest 40 basis point decline from 2025 levels.
Higher EUV system sales and better Installed Base Management performance should support margins. This occurs even as older DUV systems face a slower year.
Simpson describes the margin forecast as proof of effective cost control during a challenging period for DUV sales. The company’s product mix is shifting toward more profitable advanced tools.
TSMC’s expanding 3nm production may require extra EUV orders beyond what appeared in third-quarter bookings. Leading-edge capacity additions are accelerating to support AI workloads.
Morgan Stanley maintained its Overweight rating and called recent stock weakness an attractive buying opportunity. The firm expects Wall Street estimates to move higher as focus shifts to 2026-27 results.
ASML trades at approximately 36 times trailing earnings. This valuation is typical for top-tier semiconductor equipment companies.
Wednesday’s trading range stretched from $974 to $1,007 per share. The stock is hovering near its 50-day moving average.
Third-quarter results showed revenue of €7.5 billion with gross margin above 51%. Management has maintained long-term growth targets while cautioning about moderate 2026 expansion.
Wall Street consensus targets sit just below $1,000 per share. Recent bullish notes from Wells Fargo and JPMorgan suggest potential for shares to reach the low-$1,100s.
Most analysts rate ASML as Buy or Overweight. The ratings reflect the company’s dominant position in advanced lithography despite near-term cyclical headwinds.
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