Morgan Stanley latest to downgrade ASML on China, memory, Intel concerns

BY Reuters | CORPORATE | 09/20/24 08:18 AM EDT

AMSTERDAM (Reuters) - Morgan Stanley on Friday downgraded earnings estimates for computer chip equipment maker ASML, the latest brokerage to do so following weakness in the memory chip market and concerns over demand from Chinese chipmakers and Intel (INTC).

MS followed UBS and Deutsche Bank in cutting estimates and reducing share price targets for ASML after the company's share price slid 30% in July and August.

"Investors may have to wrestle with weakness not just with DRAM (memory chip market) but also with Intel (INTC) ... and the growing concern that China semiconductor capacity overspend will slow as we look to 2026," MS analysts wrote.

ASML's shares were down 2.7% at 727.80 euros at 1209 GMT on Friday.

Intel (INTC) last week paused its plans to expand in Germany for two years as it cuts capital spending amid a major rehaul of its bespoke chip-making arm.

MS hedged its advice, noting that ASML will still see a strong 2025 with AI-linked demand for its most advanced EUV tools from top chip manufacturer TSMC.

"History warns against being too negative on ASML before an order book cycle has hit peak," it said.

Deutsche Bank analysts also questioned prospects for ASML's China business, which made up nearly half of ASML's sales in the second quarter despite being for its less-advanced DUV product line.

"We now understand that the outlook for lagging spend in China has deteriorated, with over-capacity appearing," analysts wrote.

Chinese memory chip makers such as CMXT may be added to the U.S. Entity List, which restricts trade with certain companies and would limit ASML's ability to sell to them, Deutsche Bank said.

In a contrary view, Citi on Wednesday said ASML is their top tech pick in Europe following the summer sell-off.

Analysts said they expect a healthy order influx when the company reports earnings on Oct. 16.

(Reporting by Toby Sterling; Editing by Susan Fenton)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

fir_news_article