Semiconductor stocks remain the backbone of the AI and data center boom, even as geopolitics and uneven spending have tilted the group through recent cycles. Investors hunting durable exposure to chipmaking often focus on names that supply the factories, not just the chips.
One name now moving up that list is ASML (ASML). The company just received a major vote of confidence from Morgan Stanley, which not only raised its price target but also labeled ASML its Top Pick in European semiconductors. The call comes as demand strengthens across memory and logic, with new EUV tool cycles and DRAM transitions pointing to healthier margins heading into 2026.
For investors looking for a potential leader in the next semiconductor upcycle, here’s a closer look at ASML.
ASML is a Dutch tech titan and the world’s largest supplier of chipmaking equipment. Its photolithography machines, especially the cutting-edge EUV tools, are absolutely critical for making the latest CPUs, GPUs, and memory chips. In fact, no other company makes EUV machines at scale, giving ASML a unique oligopoly in advanced chipmaking. Its customers include chip giants like TSMC (TSM), Samsung (SMSN.L.EB), Intel (INTC), and Micron (MU), who rely on ASML’s gear to etch ever-smaller transistors onto silicon.
ASML’s stock is having a monster year. Year-to-date (YTD) in 2025, the share price is up roughly 55%, making it one of the best performers in the chip sector. ASML stock jumped because big companies are buying more chips for AI and data centers, and ASML sells the machines needed to make those chips. Rising AI demand means more orders and stronger future sales.
Yet, that strong performance comes at a price. ASML’s valuation is sky-high by most measures. Its forward P/E is around 35x, far above the broad sector median, which trades at 23x.
www.barchart.com
ASML had a solid third quarter in 2025, as reported on Oct. 15, and the company missed the top-line estimate but surpassed earnings estimates. The company recorded €7.5 billion in sales, slightly higher than last year, and posted net income of about €2.1 billion. Earnings came in at €5.49 per share, which was better than a year ago. Gross margin stayed strong at just over 51%.
ASML shipped 66 new machines during the quarter, about the same as last year. Orders were strong, however, especially for its EUV tools, showing that chipmakers are still spending despite concerns about the economy. Service revenue dipped slightly.
Free cash flow dropped because ASML spent more on inventory and research, but the company still holds more than €5 billion in cash.
Looking ahead, ASML’s own management has warned that Chinese demand will soften. CEO Christophe Fouquet said Q3 was “a good quarter,” with strong AI-led logic and DRAM interest, but he also cautioned that China sales will “decline significantly” in 2026.
ASML has been busy beyond just earnings. In mid-September, it announced a €1.3 billion strategic investment in Mistral AI (a French AI startup). The goal was to embed AI and machine learning across ASML’s equipment portfolio to boost performance and yield. This partnership shows how the AI hype is bleeding back into semiconductor tools. So we can say that ASML isn’t just selling machines; it’s using AI to make those machines smarter.
On the product side, ASML recently started shipping its TWINSCAN XT:260 package lithography tool. It’s a DUV scanner that’s up to 4x more productive in chip stacking (3D packaging) than its predecessors. That is significant for advanced packaging, an area of growing chipmaking complexity. So ASML is not resting on EUV alone; it’s broadening into other litho segments.
Wall Street is mostly upbeat on ASML right now, though there are a few skeptics. Morgan Stanley analyst Lee Simpson just upgraded ASML, citing strong memory demand and AI tailwinds. He moved ASML from a “Hold” to a “Buy,” calling it a Top Pick and boosting his 12-month target to €1,000. Analysts said ASML is “riding the DRAM wave.” Memory-chip makers are shifting to more advanced processes (like those based on TSMC’s N3 node or Samsung’s 1β), which require more EUV exposures per chip.
Apart from Morgan Stanley, other firms have been busy moving targets. Goldman Sachs reiterated a “Buy” stance in late October, setting a €1,050 target. Goldman likes the AI-driven book-to-bill and expects any missed 2026 weakness in logic to be offset by strong memory spending.
Morgan Stanley and Goldman now see ASML as a core winner in the chip boom, and even big names like J.P. Morgan are at all-time-high targets.
The average Wall Street target is at $1,038.50, which the company already surpassed, and the stock is climbing towards its street high target of $1,200, which is around 11% up from current levels.
So investors should note that analysts emphasize ASML’s “secular growth” in leading-edge chips, but some remind readers that this is a capital-intensive, cyclical business. If inventory builds or AI hype cools, there could be near-term bumps.
www.barchart.com
On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
