Shares of Dutch chip equipment supplier ASML (ASML) (NL:ASML) rose 2.6% in pre-market trading after Morgan Stanley analyst Lee Simpson named it the “Top Pick” in European semiconductors. He also raised the price target to €1,000 from €975, implying 16.2% upside potential. Simpson sees demand getting stronger in key chipmaking areas like memory and logic. This upgrade follows over a year of uncertainty caused by geopolitical issues and uneven spending habits.
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Simpson recently upgraded ASML stock from a Hold rating to Buy, citing the potential for positive earnings revisions and a cyclical recovery into 2026-27.
ASML is Riding the DRAM Wave
Simpson believes ASML is riding the DRAM wave into fiscal 2026, fueled by technological shifts among leading memory manufacturers. The most notable shift is from older 1a and 1b nodes to the newer, more advanced 1c node with smaller, more efficient chip fabrication.
He highlighted that each shift adds more EUV (Extreme Ultraviolet) layers, with 5-6 layers expected at 1c. This raises lithography intensity and shows strong ongoing demand for EUV in DRAM (Dynamic Random Access Memory) production.
Moreover, Simpson’s recent discussions with the management suggest stronger demand visibility from Samsung Electronics (SSNLF) and SK Hynix, adding that Samsung might still place more orders for FY26.
Additionally, Simpson expects margins to remain strong despite a slowdown in older DUV (Deep Ultraviolet) systems next year. He argued that higher EUV sales and better profitability from equipment already in use should balance the decline. He models a 52.3% gross margin for 2026, slightly down but showing good margin control during tough times. China demand is forecast to drop 15%, which is less than management’s 20% drop expectation.
Customer Orders Are Expected to Ramp Up
Nvidia (NVDA) reported extremely high demand for its new Blackwell AI chips. This strong demand is positive for ASML’s 2026-27 production cycles, especially for EUV tools, as chipmakers speed up capacity expansions to meet AI needs.
Also, Simpson expects more EUV lithography orders as Taiwan Semiconductor (TSM) ramps up its 3nm production, which involves complex, power-intensive EUV layers. TSM’s new orders were not included in ASML’s Q3 order book, indicating potential growth beyond current forecasts.
Is ASML Stock a Buy?
On TipRanks, ASML stock has a Strong Buy consensus rating based on 16 Buys and five Hold ratings. The average ASML price target of €965.95 implies 12.3% upside potential from current levels. Year-to-date, ASML stock has gained nearly 28%.
