China Semiconductors 24 November 2025 China Semicap: Will China WFE spending ever slow down? Qingyuan Lin, Ph.D. +852 2123 2654 qingyuan.lin@bernsteinsg.com Stacy A. Rasgon, Ph.D. +1 213 559 5917 stacy.rasgon@bernsteinsg.com David Dai, CFA +852 2918 5704 david.dai@bernsteinsg.com Zheng Cui +852 2123 2694 zheng.cui@bernsteinsg.com Arpad von Nemes +1 917 344 8461 arpad.vonnemes@bernsteinsg.com Juho Hwang +852 2123 2632 juho.hwang@bernsteinsg.com Carmine Milano +44 20 7762 1857 carmine.milano@bernsteinsg.com 2 ...

Core Viewpoint - Morgan Stanley believes that the strong DRAM technology upgrade cycle, the potential early rollout of TSMC's 3nm process, and the indirect demand from NVIDIA's AI chips are key catalysts driving ASML's profit growth in 2026-2027. The firm has raised ASML's target price from €975 to €1000 [1][2][11]. Group 1: DRAM Market Dynamics - The demand in the DRAM market is robust, with ASML maintaining solid demand during the transition from 1a and 1b nodes to 1γ/1c nodes. Each technology node evolution increases the number of EUV lithography layers required, with the 1c node needing 5-6 layers [3][4]. - Samsung and SK Hynix's demand for DRAM in FY2026 is expected to be clear, supported by strong price increases in the commodity DRAM market [3]. Group 2: TSMC's 3nm Process - TSMC is reportedly testing the original graphic performance of its 3nm process, with potential adoption at its Arizona facility occurring earlier than the initially planned 2028 [4]. - ASML benefits from TSMC's 3nm technology, as it relies on ASML's EUV lithography machines to produce more powerful, energy-efficient, and smaller chips [4]. Group 3: AI Demand and Market Recovery - The growth of AI is indirectly creating demand for ASML, with NVIDIA's record quarterly revenue indicating strong market interest in its Blackwell series GPUs. This demand is expected to support ASML's wafer fabrication equipment supply in FY2026/27 [6][9]. - ASML is emerging from a prolonged 14-month downturn, with signs of new growth momentum as evidenced by rising commodity DRAM prices and advancements in Samsung's HBM3e/HBM4 [9]. Group 4: Profitability and Challenges - Despite an optimistic outlook, ASML faces challenges, particularly in its DUV business, which is expected to see a 15% year-over-year sales decline due to weakened demand in a key Asian market [10]. - ASML's profit margins are expected to remain resilient, supported by higher EUV sales and contributions from its installed base management business. The projected gross margin for FY2026 is 52.3%, only slightly down from 52.7% in FY2025 [11].

Core Insights - ASML is emerging from a prolonged 14-month downturn, with new growth drivers identified in the demand for DRAM and advanced logic chips, leading to a positive growth outlook for the fiscal years 2026-2027 [1] Group 1: DRAM Market Dynamics - The strong demand in the DRAM market is evident, with ASML maintaining solid demand during the transition from 1a and 1b nodes to 1γ/1c nodes, which is crucial for enhancing lithography intensity [2] - Each technological node evolution increases the number of EUV lithography layers required, with the 1c node needing 5-6 layers, indicating sustained demand for EUV lithography systems [2] - Samsung and SK Hynix are expected to have clear demand in fiscal year 2026, supported by strong price increases in commodity DRAM [2] Group 2: Advancements in 3nm Technology - TSMC is testing the original graphic performance of 3nm technology, with potential adoption at its Arizona facility possibly occurring earlier than the initially planned 2028 [3] - ASML benefits from TSMC's 3nm process technology, which relies on ASML's EUV lithography machines to produce more powerful, energy-efficient, and smaller chips [3] - The growth of AI is indirectly creating demand for ASML, with NVIDIA's record quarterly revenue indicating strong interest in its Blackwell series GPUs, which is expected to drive TSMC's expansion of 3nm capacity and increase orders for EUV lithography machines [3] Group 3: Market Recovery and Valuation Reassessment - ASML is moving out of a lengthy downturn, with previous cycles typically compressing its two-year forward P/E ratio from 30-35x to 18-22x within 8-10 months; however, this cycle has lasted over 14 months due to geopolitical uncertainties [5] - The downturn was primarily due to weak spending from foundries other than TSMC, such as Intel and Samsung, along with concerns about lithography intensity and pricing pressure, which have now largely dissipated [5] - The report indicates that the average selling price (ASP) of EUV is expected to rise due to TSMC's adoption of computational lithography, with evidence of a "memory super cycle" emerging from rising commodity DRAM prices and advancements in Samsung's HBM3e/HBM4 [5] Group 4: Profitability and Business Challenges - Despite a positive outlook, ASML faces challenges, particularly in its DUV business, which is expected to see a year-on-year sales decline of approximately 15% due to weakened demand in a key Asian market [6] - ASML's profit margins are expected to remain resilient, supported by higher EUV sales and contributions from its installed base management business [6] - The forecast for ASML's gross margin in fiscal year 2026 is 52.3%, only slightly down from 52.7% in 2025, demonstrating the company's ability to control margins during a challenging DUV year [6] Group 5: Investment Outlook - Based on the positive outlook, Morgan Stanley has raised its target price for ASML from €975 to €1000 and maintains an "overweight" rating, viewing the recent stock price decline as an attractive entry point [6]

Market Overview - Stocks surged ahead of the Thanksgiving holiday, with the Nasdaq gaining 0.82% to 23,214.69, S&P 500 up 0.69% to 6,812.61, and Dow Jones increasing by 0.67% to 47,427.12, driven by optimism in the market and positive labor-market data showing a drop in initial jobless claims [1] Robinhood Markets Inc. - Robinhood's stock surged 10.93%, closing at $128.20, with an intraday high of $128.90 and a low of $120.86, while its 52-week high and low are $153.86 and $29.66 respectively [2] - The company announced plans to launch a futures and derivatives exchange and clearinghouse through a joint venture, with Susquehanna International Group as the initial liquidity provider, which could enhance liquidity and allow for the design of custom contracts [3] Beyond Meat Inc. - Beyond Meat's stock rose 19.01%, closing at $1.02, with an intraday high of $1.05 and a low of $0.86, while its 52-week high and low are $7.69 and $0.50 respectively [4] - The stock rebound occurred despite no new developments, attributed to broader market optimism, although the company reported a third-quarter revenue of $70.2 million, down 13.3% year-over-year, and a weak fourth-quarter outlook of $60–65 million [5] Tilray Brands Inc. - Tilray's stock increased by 4.76%, closing at $1.03, with an intraday high of $1.06 and a low of $0.99, while its 52-week high and low are $2.32 and $0.35 respectively [6] - The company announced a 1-for-10 reverse stock split effective December 1, aiming to reduce annual costs by about $1 million and attract institutional investors [6] ASML Holdings NV - ASML's stock climbed 3.76%, closing at $1,040.97, with an intraday high of $1,055 and a low of $1,037.30, while its 52-week high and low are $1,086.11 and $578.51 respectively [7] - The company benefits from strong AI-driven demand and its monopoly in EUV tools, with Goldman Sachs projecting long-term revenue could more than double, and it expects over 25% of 2025 sales to come from China [7] SMX (Security Matters) PLC - SMX's stock skyrocketed 194.42%, closing at $17.40, with an intraday high of $17.40 and a low of $5.91, while its 52-week high and low are $66,187.39 and $3.12 respectively [8] - The company is gaining attention due to its molecular tagging technology for gold verification, which aims to improve traceability and auditability in the gold supply chain, supported by interest from operators like Brink's [9]

Market Performance - US stock market opened high and closed higher, with all three major indices rising for four consecutive days [1] - Dow Jones increased by 0.67% to 47,427.12 points, S&P 500 rose by 0.69% to 6,812.61 points, and Nasdaq Composite climbed by 0.82% to 23,214.69 points [1] - Market volatility eased, with the S&P 500 volatility index (VIX) dropping approximately 35% over four days, marking the largest decline since mid-April [1] Technology Sector - Mixed performance among large tech stocks: Nvidia up 1.37%, Apple up 0.21%, Google C down 1.04%, Microsoft up 1.78%, Amazon down 0.22%, Broadcom up 3.26%, Meta down 0.41%, and Tesla up 1.71% [1] - Philadelphia Semiconductor Index rose by 2.76%, with all 30 component stocks closing higher [1] - Notable gains in semiconductor stocks: Teradyne up 6.98%, Marvell Technology up 5.14%, AMD up 3.93%, ASML up 3.76%, and Micron Technology up 2.55% [1] Chinese Stocks - Nasdaq Golden Dragon China Index slightly declined by 0.03% [2] - Most popular Chinese stocks saw gains: Vipshop up 2.54%, Pinduoduo up 1.58%, JD.com up 0.96%, Li Auto up 0.6%, New Oriental up 0.39%, and Alibaba up 0.38% [2] - Declines were noted in some Chinese stocks: Hesai down 7.37%, Tencent Music down 2.33%, Xpeng down 2.22%, Baidu down 1.31%, and NIO down 0.73% [3]

Core Insights - The demand for AI infrastructure, particularly data center capacity for AI workloads, has surged significantly over the past three years, leading to increased spending on cloud computing infrastructure [1] - Nvidia forecasts that data center capital spending will grow at an annualized rate of 40% through 2030, potentially reaching between $3 trillion and $4 trillion, a substantial increase from the estimated $700 billion in 2023 [2] - ASML Holding is positioned as a key player in the semiconductor industry, essential for manufacturing advanced chips required for data centers [3][4] Industry Overview - The semiconductor industry is experiencing a boom due to the rising demand for AI-capable data centers, with a projected 400% increase in data center capital expenditures over the next five years based on Nvidia's estimates [3] - ASML holds a technical monopoly in extreme ultraviolet (EUV) lithography machines, crucial for producing advanced chips that enhance computing power and efficiency [6][7] Company Performance - ASML's net bookings in Q3 reached 5.4 billion euros, with 2.1 billion euros specifically for EUV systems, more than double the bookings from the same quarter last year [8] - The company is expected to benefit from the increasing demand for advanced AI chips and the industry's focus on power efficiency, with SEMI projecting a 69% increase in advanced chip production by 2028 [9][10] Financial Projections - Annual spending on advanced chipmaking equipment is anticipated to rise from $26 billion in 2023 to $50 billion by 2028, providing significant revenue opportunities for ASML [11] - Analysts predict a 28% increase in ASML's earnings in 2025, with further growth expected in subsequent years, potentially leading to a bottom line of $62.90 per share by the end of the decade [13][15] Stock Valuation - Applying a forward earnings multiple of 26 to ASML's projected 2030 earnings could result in a stock price of $1,635, representing a 69% increase from current levels, making ASML an attractive investment in the context of growing data center capital expenditures [16]

Core Viewpoint - ASML's stock price increased by over 4%, surpassing a one-week high, and its total market value returned to $400 billion [1] Group 1 - ASML's stock performance indicates positive market sentiment and investor confidence [1] - The market capitalization recovery to $400 billion reflects strong financial health and growth potential [1]

Core Insights - ASML Holdings NV has seen an increase in its quality score, rising to 90.18 from 89.87, indicating a strengthening fundamental profile [1][2] Group 1: Quality Score and Financial Health - The quality score is a composite ranking that evaluates operational efficiency and financial health, based on historical profitability metrics and fundamental strength indicators relative to peers [3] - ASML's movement into the 90th percentile for quality suggests that its operational efficiency is aligned with its rapid technological expansion [3] Group 2: Revenue Growth and Market Position - Analysts forecast significant revenue growth for ASML, driven by its monopoly on extreme ultraviolet (EUV) lithography tools, essential for advanced memory chip production [2][5] - Goldman Sachs analysts project that ASML's revenue could more than double its expectations for 2030, reflecting a bullish long-term outlook [4] Group 3: Market Expansion and Strategic Partnerships - ASML is expanding its presence in key Asian markets, including a new 16,000-square-meter Hwaseong Campus in South Korea to enhance R&D collaboration with Samsung Electronics and SK Hynix [6] - Despite geopolitical tensions, ASML remains committed to the Chinese market, which is expected to account for over 25% of its total sales by 2025, driven by AI demand across various industries [7] Group 4: Stock Performance - ASML's stock closed at $1,003.22, up 1.56% on Tuesday and 2.49% in premarket trading on Wednesday, with a year-to-date increase of 43.23% and a 49.30% rise over the year [7]

Core Insights - The article discusses the evolution of the Extreme Ultraviolet (EUV) lithography market, highlighting ASML's dominance and Nikon's potential resurgence through alternative technologies like Nanoimprint Lithography (NIL) [1][4][9]. Group 1: ASML's Dominance - ASML currently holds over 60% of the global lithography market and has a 100% monopoly in the EUV sector, which is essential for producing advanced chips [2][3]. - The cost of ASML's EUV equipment ranges from $150 million to $350 million, making it a significant investment for semiconductor manufacturers like TSMC, Samsung, and Intel [2][3]. - The transition to EUV technology has allowed the industry to continue following Moore's Law, integrating billions of transistors onto a single chip [2][3]. Group 2: Nikon's Strategic Shift - Nikon, which once led the market, has shifted focus to mature processes and special applications after abandoning EUV development in the late 2010s [1][3]. - Nikon is planning a comeback by introducing the DSP 100 digital lithography system in 2025, targeting the growing demand for advanced chip packaging [7][9]. - The company is exploring NIL technology, which could significantly reduce costs and energy consumption compared to EUV, making it an attractive option for emerging chip manufacturers [8][11]. Group 3: NIL Technology Advantages - NIL technology allows for direct imprinting of circuit patterns onto wafers, potentially reducing costs to about 40% of EUV systems and energy consumption to around 10% [8][11]. - The NIL process is not constrained by optical diffraction limits, theoretically enabling production below 10 nm, which is suitable for high-repetition memory processes like NAND and DRAM [11]. - Canon has already introduced NIL equipment capable of reaching 14 nm, indicating a competitive landscape where both Nikon and Canon could set new standards in this technology [11].

Group 1 - ASML is a critical supplier in the semiconductor industry, providing cutting-edge technology essential for its advancement [2][1] - The company is recognized for assembling the most advanced technology that supports the semiconductor sector [1]