Jefferies Downgrades ASML Holding N.V. (ASML) Stock to Hold

ASML Holding N.V. (NASDAQ:ASML) is one of the Top 10 AI and Technology Stocks to Buy According to Analysts. On June 26, Jefferies analyst Janardan Menon downgraded the company’s stock to “Hold” from “Buy” with a price objective of EUR 690, an increase from the prior target of EUR 660. The firm expects 2026 wafer fab equipment to witness a fall of 1%, compared to the consensus of positive double-digit growth. The analyst further added that the negative view comes due to an anti-consensus expectation for a 16% decline in DRAM wafer fab equipment in 2026, and a further fall in China wafer fab equipment.

ASML Holding N.V. (NASDAQ:ASML)’s Q1 2025 total net sales amounted to €7.7 billion, which were in line with its guidance. The gross margin stood at 54.0%, which was above guidance and driven by a favorable EUV product mix and achievement of performance milestones. ASML Holding N.V. (NASDAQ:ASML) also highlighted that AI remains the primary growth driver in the industry. It has led to a pivot in the market dynamics, which benefits some customers more than others, resulting in upside potential and downside risks as reflected in the 2025 revenue range. ASML Holding N.V. (NASDAQ:ASML) expects total net sales for the year of between €30 billion – €35 billion, with a gross margin of 51% and 53%.

Appalaches Capital, an investment management firm, released its Q1 2025 investor letter. Here is what the fund said:

“We also initiated positions in ASML Holding N.V. (NASDAQ:ASML) and Lam Research Corporation (LRCX), companies that manufacture capital equipment for the semiconductor industry. You may be wondering if I have been “red-pilled” by A.I. after being so iconoclastic to the trend just a year ago. Not quite. Despite all of the attention being given to Artificial Intelligence, the rest of the semiconductor industry, like memory and trailing-edge nodes, has been recovering out of a cyclical trough. Semiconductor foundries have additionally announced large increases to their capital expenditure budgets, which flow directly into the backlogs of companies like ASML and Lam. After a long period of consolidation, both operate in a highly consolidated industry structure with little to no competition. Both companies have smart and disciplined capital allocation, returning most of their cash flows to shareholders through large repurchase programs. While not thought of as traditional value stocks (despite having healthy free cash flow yields), I have a very favorable view of the industry broadly.

In order to understand what these companies do, and why it is so difficult to compete with them, a quick look into a semiconductor fabrication facility (a “fab”) is necessary.

Fabs vary in size, but most modern facilities will be at least 250,000 square feet in production space, or around 6 acres. According to Intel, their fabs have 1,200 different tools laid out across the facility, each having a size that ranges from that of a small car to a school bus. These tools print, deposit, etch, clean, and inspect features that are only nanometers in size on a small disk of crystalline silicon, called a wafer. These silicon wafers travel from tool to tool in a sterilized container on an interconnected highway system of rails, intentionally and algorithmically laid out for maximum efficiency. A wafer will be transferred from machine-to-machine thousands of times over a period of three to four months before being completed; any interruption in the process significantly reduces the throughput of the fab and risks contaminating the highly delicate chip-structure with dust and other microscopic debris. The fabs themselves take three to five years to build and are designed around the dimensions of the tools being purchased. All of this is to say that once a tool is in the specifications of the facility, there is no replacing it with a competitor…” (Click here to read the full text)

While we acknowledge the potential of ASML to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than ASML and that has 100x upside potential, check out our report about this cheapest AI stock.

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