(Bloomberg) — UBS Group AG has finalized a two-year bullish forecast for European tech darling ASML Holding NV, warning that the profit growth potential of artificial intelligence is being overstated.
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The bank’s analysts downgraded the stock to hold from buy after the stock surged more than 60% since UBS first issued a buy rating in August 2022.
“Investors will likely be less willing to pay the premium that ASML has achieved in recent years,” even though the company is “one of the best fundamental stories in the European technology sector,” the UBS analysts, including Francois-Xavier Bouvignies, wrote in a note published on Wednesday.
The downgrade reflects broader market confidence that the mania for artificial intelligence has gone too far. Nvidia Corp. shares fell 9.5% on Tuesday, accelerating a slump that began last week and sent ripples through the broader semiconductor sector. ASML shares fell as much as 7.1% on Wednesday, hitting their lowest level in a month.
According to data compiled by Bloomberg, ASML is still rated a buy by more than three-quarters of Wall Street analysts who follow the company, while only one analyst recommends selling the stock.
Revenue growth at the Dutch chip equipment maker is likely to slow after 2025, analysts at UBS said. As the industry transitions to a new transistor architecture, companies that make logic chips will prioritize spending elsewhere rather than on ASML’s lithography tools, the analysts said.
Sales outlook
According to the analysts, the stockpiling of ASML’s high-end machines by memory chip makers may not continue after 2025, because the capacities now built up can be reused for future products. Together, demand for AI is likely to account for only 10% to 15% of the company’s revenue in the coming years, they said.
ASML is expected to announce its long-term forecasts during the investor day on November 14.
Separately, Eindhovens Dagblad reported that ASML is delaying current orders for some machine parts from its suppliers, citing unidentified people close to the company. An ASML spokeswoman said the company stands by the comments made during its second-quarter results presentation.
(Adds the Eindhovens Dagblad report and the company’s response in the last paragraph.)
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