AI’s impact on ASML stock might be overestimated: What you need to know

ASML Holding NV, a leading supplier in the semiconductor industry, has seen its stock plunge over 25% in the past two months.

This decline follows a broad market correction in AI stocks, raising questions about whether ASML’s share price may have been overinflated by the AI frenzy.

UBS analyst Francois-Xavier Bouvignies has downgraded ASML to a “neutral” rating, citing concerns that AI may not drive the expected earnings growth for the company.

What could stand in the way of ASML stock recovery?

Bouvignies’ downgrade reflects growing skepticism that AI will deliver the substantial earnings boost many investors anticipated.

On Wednesday, he noted that as AI-driven growth projections have become overly optimistic, investors might be less inclined to pay a premium for ASML shares.

The analyst suggests that this overhype has contributed to the stock’s recent weakness, which may not necessarily represent a buying opportunity.

Despite being seen as one of the strongest fundamental stories in European tech, Bouvignies warns of potential revenue slowdowns for ASML.

The shift to a new transistor architecture may lead chipmakers to cut back on spending on ASML’s lithography tools after 2025.

Additionally, demand for ASML’s high-end machines might diminish as memory chip manufacturers reuse existing capacities for future products.

Bouvignies predicts that AI will contribute to no more than 15% of ASML’s revenue over the next few years.

ASML management remains bullish for 2025

ASML is scheduled to present its long-term projections on November 14th during its investor day.

Despite the current concerns, ASML remains an attractive option for income-focused investors, offering a dividend yield of 0.84%. Management remains optimistic, forecasting that 2025 could be a record year for the company.

The stock, trading at a forward price-to-earnings ratio of 27, is relatively inexpensive compared to other tech giants like Nvidia.

UBS has set a new price target of €900 for ASML, suggesting a potential upside of about 25% from current levels.

This valuation indicates that, despite recent volatility, ASML could still be a compelling investment for those seeking exposure to the semiconductor sector and AI market.

ASML’s stock may face short-term challenges, but its unique position in the semiconductor industry and its anticipated long-term growth prospects make it a potentially smart investment.

While AI-driven earnings growth may be less impactful than previously expected, ASML’s strong fundamentals and strategic outlook support its potential for future gains.