Analysts at major Wall Street banks are growing more cautious about ASML, a leading chip equipment maker, due to concerns about its demand outlook. Recently, UBS downgraded ASML to 'neutral' and reduced its price target from 1,050 euros to 900 euros ($1,000.78). UBS anticipates a 'plateau in litho intensity' for both logic and memory chips. ASML plays a critical role in chip manufacturing with its extreme ultraviolet lithography (EUV) machines, essential for creating complex microchip designs. Companies like TSMC and Intel depend heavily on ASML's technology.

Other Wall Street banks have echoed UBS's sentiments. Morgan Stanley cut its price target to 925 euros from 1,000 euros and removed ASML from its 'top pick' stocks. Despite recognizing ASML as a 'growth cyclical name with high-quality earnings,' they believe its valuation might have peaked. Morgan Stanley analysts mentioned that AI infrastructure spending remains high, but ASML might face an 'unwind of inflated expectations' related to the technology. Earlier this year, ASML benefited from the AI momentum, with its stock peaking at 1,002 euros in July, but has since declined nearly 30%.

Bank of America also reduced its price target from 1,302 euros to 1,064 euros, citing lower EBITDA estimates and multiples. Despite this, the bank remains bullish, viewing the pullback as a buying opportunity. Concerns have been raised about the adoption of ASML's next-generation 'High NA' EUV machines, expected to enable more sophisticated chips. Morgan Stanley expects the adoption to be 'lumpy,' with a possible 'air gap' in 2026 and a ramp-up likely in 2027-28. UBS cautioned that demand might slow due to a shift to gate all around architecture (GAA), designed to improve chip performance and efficiency.

Another potential challenge for ASML is that semiconductor firms might reuse existing EUV equipment rather than buying new, a trend especially noted among memory chip makers like Samsung and SK Hynix. Morgan Stanley warned of a slowdown in Installed Base Management (IBM) growth, potentially peaking in 2025 and 2026. Additionally, U.S.-China trade tensions could pressure ASML's demand. While optimistic about China demand through next year, Morgan Stanley sees risks in 2026 due to possible export restrictions. On Friday, new U.S. export controls were announced, impacting ASML's advanced chipmaking tools. The Dutch government also introduced licensing requirements for ASML's exports to China, citing national security concerns.

ASML stated these changes wouldn’t affect its financial outlook for 2024 or its long-term plans. CEO Christophe Fouquet commented that U.S. restrictions have become more economically motivated. UBS expects China spending on lithography machines to normalize amidst trade tensions, predicting a decline in ASML's China revenue by 24% in 2025 and 11% in 2026. Not all views are negative, though. Jefferies argued that the shift to GAA architecture wouldn’t impact demand for ASML’s EUV machines, seeing lithography tools and GAA as complementary. Jefferies also viewed recent weaknesses in ASML shares as a 'great buying opportunity,' unaffected by U.S. trade curbs, and remained positive about the company's outlook for 2025 and beyond.