Shares of ASML (ASML 1.33%) rallied on Monday, up a strong 6.6%.
ASML had been a relative laggard compared with other semiconductor equipment stocks this year, but received a nice upgrade on Friday afternoon from a sell-side analyst. The upgrade coincided with recent strong data on the ongoing AI buildout, lifting shares well above the market.
Arete upgrades ASML for the first time in seven years
Arete Research is a boutique equity research shop that isn't affiliated with a major Wall Street bank, but has been covering tech, media, and telecom since 2000. Arete has been covering ASML since 2018, but upgraded the stock from hold to buy for the first time today, while putting an 879 euro price target on shares. The stock currently trades near that figure in terms of dollars, but only trades at 729.40 euros as of this writing.
Arete believes ASML should benefit from strong spending by key customer Taiwan Semiconductor Manufacturing, which the analysts at Arete estimate will spend $50 billion in both 2026 and 2027. That would be up from this year's estimated $38 billion to $42 billion capital spending range TSMC management recently gave.
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Early summer fears over ASML seem to be fading
ASML had scared investors a bit earlier this summer, noting that it could not guarantee 2026 would be a growth year, given uncertainty around tariffs and non-TSMC customers. However, it appears AI spending continues to be even stronger than contemplated, as evidenced by last week's slate of bullish data points on AI spending.
Meanwhile, ASML's valuation, while not cheap, had fallen to just about the cheapest in 10 years and the cheapest in relation to other semicap leaders. This has been due to questions over its China business and the near-term emphasis on etch and deposition over lithography, as chipmakers innovate new gate-all-around transistors and backside power.
Still, ASML has a monopoly on the extreme ultraviolet lithography (EUV) technology required to make leading-edge chips and DRAM memory. Leading-edge logic and DRAM are the main ingredients of AI systems, so it was likely only a matter of time before the stock began its ascent once again.
