BofA Lowers ASML Price Target Amid Decreased Demand for High NA Machines

This content is not intended as investment advice. The author holds no shares in any of the stocks referenced here.

Bank of America has revised its share price target for ASML, a leading lithography equipment manufacturer, in response to a notable slowdown in demand for its advanced high NA extreme ultraviolet (EUV) lithography machines. The updated target now stands at €759, a reduction from the previous figure of €795. This adjustment is accompanied by lowered earnings per share (EPS) estimates for 2026 and 2027.

This decision by BofA follows recent remarks by an Intel executive, who suggested that lithography’s role in cutting-edge chip fabrication is diminishing. Lithography is a critical initial step in chip production, during which designs are imprinted onto silicon wafers to create millions of transistors. The resolution of these lithography machines is a key determinant of the circuit size that can ultimately be produced.

Modern chip manufacturing techniques increasingly prioritize advanced transistor designs that focus on vertical layering instead of expanding horizontally. Such design strategies have diminished the emphasis on resolution in chip fabrication. Consequently, ASML’s latest high NA EUV machines may not be as vital for the newest generations of chip manufacturing technology, in contrast to previous EUV systems that facilitated production at the 7-nanometer node and below.

An ASML EUV machine, comparable in size to a large bus.

Despite the lowered share price target, BofA finds ASML’s forward enterprise value to operating income ratio of 19.6 to still be appealing, although it is below the historical average of 22. This ratio plays a significant role in the bank’s stock recommendation; BofA maintains a ‘Buy’ rating while adjusting the share price target. The estimate revisions are influenced by anticipated lower earnings, with BofA projecting a decline in EPS of up to 5%.

BofA’s caution stems from a variety of factors, including stagnant demand for high NA EUV scanners, challenges faced by Samsung in obtaining approval for its memory products from NVIDIA, ongoing production issues at Intel, which has yet to initiate mass production of its latest 18A chip manufacturing technology, and potential restrictions on chip manufacturing equipment exports to China from the United States.

Furthermore, BofA predicts that ASML will deliver only four high NA EUV scanners in 2026, indicative of a substantial 50% drop in expected shipments. However, despite these challenges, optimism regarding the global AI chip market supports BofA’s long-term outlook for ASML. The bank forecasts that demand for AI chips could surge to $795 billion by 2030, potentially spurring increased need for lithography equipment, particularly since AI chips are manufactured using the most advanced technologies to meet stringent power and performance criteria.

Source & Images