Hua Er Jie Jian Wen·2025-11-27 06:48Core 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]