ASML stock target cut at BofA on macro and tariff uncertainties

Bank of America has lowered its price target for ASML Holding N.V. from €755 to €724 and significantly reduced its Q3 and Q4 booking estimates, citing macroeconomic headwinds, tariff uncertainties, and slower conversion of AI capital expenditure into wafer fab equipment orders, particularly impacting China revenues. Despite projecting a 0.6% sales decline in CY26 due to these near-term challenges, BofA reiterated a "Buy" rating, anticipating a growth rebound in CY27 fueled by new U.S. fab openings and sustained, increasing lithography intensity.

Analysis

Bank of America has revised its outlook on ASML Holding N.V., reducing its price target from €755 to €724 while paradoxically reiterating a 'Buy' rating. The price target reduction is underpinned by significant cuts to near-term booking estimates for Q3 and Q4 2024, to €3.5 billion and €3.8 billion respectively, reflecting a cautious stance on macroeconomic conditions, unresolved semiconductor tariff issues, and weakening wafer fab equipment (WFE) demand in China. The analysis notes a lag in the conversion of strong AI capital expenditure into WFE orders, attributing this to capacity re-use and uncertainty around high-bandwidth memory. This caution is reflected in a lower valuation multiple of 20x EV/EBITDA, down from 23x. However, the 'Buy' rating is maintained based on a long-term thesis that anticipates a growth rebound in CY27, fueled by new U.S. fab openings. This outlook is further supported by the structurally resilient trend of increasing lithography intensity, which is projected to rise to 28% this year from 25% in 2024, driven by EUV adoption in DRAM and renewed purchasing by customers like TSMC.

Key Decisions for Investors

• Investors should anticipate near-term pressure on ASML's stock due to lowered Q3/Q4 booking forecasts and specific headwinds from tariff uncertainty and slowing China demand.
• The reiterated 'Buy' rating suggests that long-term investors could view the current situation as a potential entry point, contingent on the growth thesis for CY27 materializing from new U.S. fab constructions.
• Key performance indicators to monitor are the conversion rate of AI capital spending into tangible equipment orders and any shifts in China's WFE demand, as these are the primary risks to the current outlook.
• Consider that the analyst's valuation multiple has been compressed from 23x to 20x EV/EBITDA, signaling increased perceived risk and a potential re-rating of the stock's near-term growth prospects.