ASML Fair Value Raised as Outlook Improves

We have higher confidence in the semiconductor equipment stock’s long-term prospects

Javier Correonero 5 June, 2024 | 5:14PM
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Key Morningstar Metrics for ASML Stock

Fair Value Estimate: €900
Morningstar Rating: 3 stars
Economic Moat: Wide
Morningstar Uncertainty Rating: High

We raise wide-moat ASML’s (ASML) fair value estimate to €900 from €790 as we increase our long-term revenue and EBIT forecasts. While our 2025 estimates remain unchanged we raise our long-term revenue forecasts due to higher confidence in ASML’s long-term prospects and better certainty of high-NA extreme ultraviolet adoption. Our fair value represents a 2025 P/E ratio of 31.5 times.

Our forecast was already at the high end of management’s 2030 guidance given their outlook seemed a bit outdated as it was launched in November 2022, prior to the artificial intelligence boom. With ASML’s 2030 revenue target spanning a wide range (€44 billion-€60 billion), we are confident it will get close to the high end of its guidance and assume €58.5 billion (£49.77 billion) in sales compared with €56.7 billion previously.

We’re also raising our stage 2 EBI growth rate assumption to 9%, from 7% previously, given the semiconductor road map for node shrinking is set for the next 20 years. Lithography intensity will continue growing in logic and memory markets as semiconductor patterns keep shrinking and transistors move to 3D structures.

Will TSMC Buy a High-NA EUV Machine?

Bloomberg News also reported on June 5 that wide-moat Taiwan Semiconductor Manufacturing (TSMC), the world’s most advanced logic foundry, will buy its first high-NA EUV machine by year-end, which commands a unit price of €350 million. This is a departure from TSMC’s previous narrative as in January TSMC’s CEO and Chairman CC Wei expressed reservations regarding the adoption of high-NA EUV.

Wei’s comments suggested the technology wasn’t mature enough and that TSMC would make "the right decision at the right time". Although TSMC won’t adopt high-NA EUV in a manufacturing environment until after 2026, the news increases our certainty of high-NA EUV long-term adoption given that TSMC is the most sound foundry in the world, operationally. We surmise TSMC didn’t want to fall behind Intel (INTC), which became the first to adopt high-NA EUV in December 2023.

In the near term, there is uncertainty about whether ASML will be able to secure enough order bookings to reassure investors on the 2025 guidance. In our view, any pullback on the shares is a good opportunity to buy this wide-moat stock, given the long-term picture remains strong.



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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
ASML Holding NV980.40 EUR1.44Rating
Intel Corp31.00 USD1.19Rating

About Author

Javier Correonero  is an equity analyst for Morningstar

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