This stock remains UBS’ top European tech pick as AI spending stays strong

UBS reaffirmed ASML as its top European tech hardware pick, citing resilient AI-driven demand that is keeping second-half guidance intact until clearer slowdown evidence. UBS lifted its 2026 revenue estimate to €39.4B (+21% vs prior), raised 2026 WFE to $147B (+27% YoY), and increased 2027 WFE to $198B and 2028 to $247.5B, supporting EPS upside of 10%+ vs consensus for 2027-28. For the upcoming Q2 report (July 15), UBS forecasts revenue ~1% above consensus and gross margin of 53% (vs 52% consensus), with EBIT margin 36.1% (vs 34.6%); shares carry a €2,100 price target on a Buy rating.

Analysis

The cleanest read is that this is a quality-of-earnings setup, not just a revenue setup. The highest-conviction upside sits in ASML and, secondarily, ASMIY because the market still underweights how much incremental AI/advanced-node spend shows up first in mix and margin, not just unit growth. STM is a weaker beneficiary because its upside is more diffuse and more exposed to end-market digestion; it can participate in the cycle, but it is not the bottlenecked asset.

Into the July 15 print, the market will reward confirmation of margin strength more than another in-line top-line number. If management only reiterates the middle of the revenue range without upgrading gross margin, the stock can sell off despite healthy fundamentals because the valuation case depends on the second derivative of earnings, not the first. The bigger near-term falsifier is any hint that second-half guidance was pulled forward rather than sustained; the medium-term catalyst is whether ASML can prove capacity is elastic enough to meet demand before investors stop paying for scarcity.

The contrarian risk is that consensus may be too linear on memory. A sharp WFE revision driven by DRAM is bullish for the toolchain, but memory capex is the most cyclically fragile component; if DRAM pricing rolls over, 2027-28 EPS upgrades can unwind fast even if AI logic remains solid. That makes the trade less about a secular AI supercycle and more about whether capex intensity stays elevated long enough to convert into durable estimate revision.

Key Decisions for Investors

• Long ASML into the July 15 earnings event on any market-wide pullback; favor a call spread over outright stock if implied vol is elevated. Upside case is a guide toward the top end of revenue plus a 50-100 bps gross margin lift; thesis breaks if management stays mid-range on revenue and offers no margin upside.
• Pair trade: long ASML / short STM for 1-3 months to isolate the strongest operating leverage to the WFE upcycle versus the slower, more end-market-sensitive name. Cover the short if STM shows a sharper-than-expected cyclical recovery or if ASML disappoints on margins/guidance.
• Add ASMIY on weakness as a 6-18 month beneficiary of the same advanced-node spend, but size smaller than ASML because the earnings revision path is less transparent. Falsify the thesis if memory spending does not remain elevated into 2026.
• Use ASML Sep-Dec 2025 call spreads to express upside to the upper-end guide while capping premium risk; this is preferable to common stock if you expect a good-not-great print that still confirms the bull cycle. Exit/trim if the company cannot validate supply elasticity or if gross margin fails to improve.