UBS names top European chip stocks to watch ahead of Q3 2026 earnings season

UBS remains constructive on European semiconductors into Q3 2026 earnings, naming ASML, ASM International and STMicroelectronics as its top picks on AI-driven capacity expansion and expected share gains. UBS expects ASML to guide for more than 30% FY2027 revenue growth and estimates its 2028 EPS could be 15%-20% above consensus; ASMI's 2027 and 2028 EPS forecasts are 10% and 20% above consensus, respectively. For STMicroelectronics, UBS projects datacenter revenue of about $2.5B in 2027 and $3.8B in 2028, equivalent to 14% and 19% of group sales, respectively.

Analysis

The investable distinction is duration and earnings quality. ASML's bottleneck position makes incremental tool pricing more valuable than unit-volume growth, so confirmation of capacity expansion can drive a second leg of estimates and sustain a premium multiple despite bond-market volatility. The key near-term read-through is whether customer order timing converts into disclosed backlog and 2027 capacity commitments; absent that, a strong revenue quarter alone is unlikely to justify a material rerating.

ASMI has the larger consensus-estimate gap but also the greater multiple risk: its valuation already embeds a substantial advanced-node deposition cycle. A visibility upgrade across logic, memory, and mature nodes would broaden the earnings base and reduce the risk that AI spending is merely a narrow leading-edge foundry theme; conversely, any qualification delay or weak order intake could compress the revenue multiple before consensus numbers fall. The more attractive competitive expression is ASML over ASMI when rates are rising, because ASML's scarcity value and installed-base service economics should prove more resilient than a high-growth equipment multiple.

STM is a higher-beta, less pure AI optionality trade. Datacenter power and photonics can change the market's view of its terminal mix, but the stock remains exposed to automotive and industrial inventory normalization; the proposed growth narrative only matters if it offsets—not merely supplements—cyclical weakness in legacy end markets. Over 6-18 months, AI power demand could also support adjacent analog/power suppliers such as IFX.DE and ON Semiconductor (ON), while silicon-photonics execution would validate a broader optical-component opportunity for Coherent (COHR).

Key Decisions for Investors

• Initiate a 1-3 month long ASML / short SOXX pair into the October 14 result: use ASML as the idiosyncratic capacity-and-pricing beneficiary while hedging broad semiconductor beta. Add only if management quantifies higher 2027 capacity or backlog support; exit if 2027 growth guidance fails to clear the implied 30% threshold or pricing commentary is not reinforced.
• Keep ASMI on a watchlist rather than chase ahead of October 27: buy only following an order/visibility upgrade that supports estimates beyond 2027, preferably after an earnings-related pullback. Risk/reward is unfavorable if forward EV/sales expands further without upward revisions; invalidate the long on weak advanced-logic or memory order commentary.
• Take a tactical long STM position through the October 29 guide only if channel data supports an automotive/industrial inventory trough. Size smaller than ASML because the AI mix is not yet sufficient to insulate earnings; take profits on a strong guide if legacy-market recovery is not corroborated, and exit on a below-seasonal fourth-quarter outlook.
• For 6-18 month exposure, monitor STM datacenter-power design wins and photonics revenue conversion versus its stated trajectory; if these fail to appear in order backlog or segment disclosure, rotate AI-infrastructure exposure toward ASML or optical suppliers such as COHR rather than underwriting a mix-shift multiple expansion in STM.