ASML stock slides after being removed from Morgan Stanley's 'Top Pick' list

ASML Holding's shares experienced a significant decline on Thursday after Morgan Stanley removed the security from its prestigious 'Top Pick' list for European semiconductor companies. As reported by the news service Investing.com, ASML's share price fell by 1.6% to €724.30 at 5:42 AM (0942 GMT). This downgrade, coupled with a target price adjustment, raises concerns about the short-term performance of ASML amid various challenges in the global semiconductor market. Morgan Stanley's decision followed a comprehensive reassessment of ASML's growth prospects. Although the brokerage maintained its 'Overweight' rating, the target price was reduced from €1,000 to €925, reflecting growing concerns about potential shortfalls in revenue and earnings growth in the coming years. "We are lowering our estimates for 2025/26 due to the cuts we expect as a result of investment reductions at Intel. Overall, we have factored in about €600 million, as we anticipate such spending restraint from the major IDM semiconductor manufacturer," explained Morgan Stanley analysts. The decreased interest in ASML's advanced Low NA EUV systems, essential for manufacturing leading-edge semiconductors, highlights the current challenges. Morgan Stanley's analysts cited several risks clouding ASML's outlook. A major concern is the diminishing investment willingness of Intel, one of ASML's largest customers, which could significantly affect the company's revenue growth. Additionally, there are growing concerns about the introduction of ASML's High NA EUV systems, regarded as the next frontier in semiconductor production. While Intel remains committed to these groundbreaking tools, other major industry players, such as TSMC, are expected to place orders for these systems only towards the end of the decade. This creates uncertainty regarding the timing of revenue realization from these systems, which are crucial for ASML's long-term growth plans. Another factor weighing down ASML's business is its dependency on the Chinese market, a significant sales region for the company. On the one hand, ASML benefits from China's continuous investments in semiconductor manufacturing. On the other hand, geopolitical tensions between the U.S. and China, especially potential additional export restrictions, could pose risks. Morgan Stanley pointed out that new U.S. regulations could affect ASML's sales in China, particularly in the field of installed base management. Besides these geopolitical risks, ASML and the entire semiconductor industry are exposed to the cyclical factors of the market. The company has so far benefited from the boom in demand for advanced chips, such as those used in artificial intelligence and other cutting-edge technologies. However, Morgan Stanley warned that the stock is vulnerable to market sentiment shifts, particularly amid growing concerns about potential demand weakness following a rapid expansion period. Despite these challenges, Morgan Stanley remains optimistic about ASML in the long run. "We continue to view ASML as a high-profile player in the global semiconductor market, demonstrated by a growing order book, dominance in the critical EUV lithography sector, and improving margins," the analysts stated. However, due to a reassessment of risks and opportunities, the brokerage adjusted its valuation approach and applied a lower multiplier to account for short-term difficulties, resulting in a target price reduction to €925.