Morgan Stanley upgrades ASML, says AI tailwinds will boost the stock

Morgan Stanley upgraded ASML to overweight, citing the ongoing AI boom and several growth drivers expected to shift earnings focus to 2026-2027, including expanding AI chip foundries, increased semiconductor manufacturing in China, and improving memory chip spending. The firm believes the market has not fully priced in ASML's cost control and gross profit shifts, aligning with the majority of analysts, and the stock reacted positively, rising over 3% in premarket trading.

Analysis

Morgan Stanley has upgraded ASML to overweight from equal weight, signaling a bullish shift based on a re-evaluation of the company's long-term earnings trajectory. The firm's analyst, Lee Simpson, posits that investor focus will pivot from the 2025-26 outlook to the 2026-27 timeframe, which is supported by several key growth drivers. These include the expansion of artificial intelligence chip foundries, an increase in semiconductor manufacturing within China, and an anticipated recovery in memory chip spending during the latter half of 2026 and 2027. This thesis is further substantiated by emerging competitive dynamics in the logic spending space, evidenced by Samsung's foundry order for Tesla, NVIDIA's $5 billion investment in Intel, and optimistic projections from Japan's Rapidus. Crucially, Morgan Stanley believes the market has not yet priced in ASML's cost control initiatives and gross profit shifts, suggesting potential for positive momentum to re-emerge. This view places the firm in alignment with the broader sell-side consensus, where two-thirds of analysts hold a buy or strong buy rating according to LSEG data. The market has reacted favorably to this analysis, with ASML's stock climbing over 3% in premarket trading and building on an approximate 33% gain year-to-date.

Key Decisions for Investors

• Given the strong analyst consensus and the long-term growth drivers linked to the AI boom, investors might consider the upgrade a signal to build or add to positions in ASML, particularly with a 2026-2027 investment horizon.
• The thesis that ASML's cost controls and gross profit shifts are not fully priced in suggests an opportunity for upside, so investors should re-evaluate their valuation models to account for these potential margin improvements.
• It is critical to monitor the specific catalysts cited, including capital expenditure from major foundries and a recovery in the memory chip market, as these will serve as key validation points for the long-term bullish outlook.