Morgan Stanley believes the market has exaggerated concerns about ASML's capacity, raising the target price to €1,660

Overview

This report focuses on ASML Holding NV, with the core view that the market is overly concerned about EUV capacity bottlenecks. Morgan Stanley believes that through cleanroom expansion at the Brainport Industries Campus and accelerated hiring, ASML is likely to meet demand for about 90 EUV tools next year and continue unlocking earnings power with support from AI infrastructure buildout, strong DRAM/HBM demand, advanced logic node migration, and long-term memory agreements.

Core views

The report has three main themes: first, ASML's capacity constraints are not unsolvable, and the company has launched a more aggressive cleanroom expansion roadmap; second, improving demand in DRAM, HBM, and advanced logic/foundry will drive EUV order and revenue visibility; third, the market is overly focused on short-term capacity figures while overlooking the earnings leverage represented by FY28 EPS rising to €51.92 and roughly 29% EPS CAGR in FY26-FY28.

Analysis framework

The report uses a combination of company commentary, historical cases, industry demand drivers, and valuation multiples. Analysts reference ASML's capacity expansion plan disclosed at the April shareholder meeting, the historical precedent of customers co-investing in EUV in 2012, the impact of long-term memory agreements on cycle visibility, and derive the target price using FY28e EPS and a 32x P/E multiple.

Methodology notes

• Valuation methodsP/E multiple method

  Derive the target price by multiplying FY28e EPS by the target P/E multiple

  The report applies 32x P/E to FY28e EPS of €51.92 to arrive at a target price of about €1,660; this multiple sits at the lower end of its cyclical peak valuation range of 30-35x.

• Scenario analysisRisk-reward scenario analysis

  Set bull, base, and bear scenarios to assess potential returns and risks

  The base-case target price is €1,660, the bull-case is €2,000, and the bear-case is €400. Key variables include advanced logic and memory demand, EUV orders, High NA adoption, and the semiconductor industry cycle.

• Fundamental forecastingMorgan Stanley ModelWare

  Use Morgan Stanley's modeling framework to generate revenue, earnings, and valuation forecasts

  The report states that, unless otherwise noted, metrics are based on the Morgan Stanley ModelWare framework, and some metrics are on a GAAP or GAAP-like basis.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ASML Holding NV

  Core covered name

  Strengths

  ASML is the dominant supplier of critical semiconductor manufacturing equipment, with scarce EUV capabilities, benefiting from DRAM/HBM, AI infrastructure, and advanced logic node migration.

  Weaknesses

  Near-term market concerns are concentrated on EUV capacity, the pace of cleanroom expansion, and memories of past difficulties in ramping EUV production.

  Comparison

  The report notes that year to date ASML has underperformed the broader semiconductor index, with ASML at about +41% versus SOXX at about +80%, but order and demand momentum remain strong.

  Risks

  Key risks include a semiconductor downturn, order cuts, slower EUV order expansion, delayed High NA sales, weaker-than-expected end demand, and volatility in China demand.

Key data

• Target price€1,660.00Derived from FY28e EPS of €51.92 and 32x P/E.
• RatingOverweight / Top PickMorgan Stanley maintains ASML as a top pick.
• FY28e EPS€51.92Equivalent to about 29% EPS CAGR from FY26 to FY28.
• View on next year's EUV tool deliveriesAbout 90 unitsBased on the company's comments at the April shareholder meeting regarding expansion and hiring plans.
• FY28 tool forecast104 unitsIncluding 96 low NA units and 8 High NA units.
• Valuation multiple32x P/ESlightly above the previous 31x, but still at the lower end of the 30-35x cyclical peak range.
• Bull-case scenario€2,000Assumes recovery in leading-edge logic foundries, data center buildout, and large-scale logic capacity expansion driving rapid order growth.
• Bear-case scenario€400Assumes a semiconductor downturn leads to order cuts and limited recovery in advanced-node equipment.

Impact & implications

If the report's view plays out, ASML's investment narrative will shift from short-term capacity constraints to medium-term earnings release and improved order visibility. Long-term memory agreements, AI infrastructure expansion, and advanced process migration could reduce the market's cyclical discount and support higher valuation multiples; however, if EUV orders slow, High NA adoption is delayed, or end demand weakens, the target price and rating would still face downside risk.

Risks

• A semiconductor downturn leads customers to cut orders.
• Advanced logic/foundry and DRAM end demand are materially weaker than expected.
• Expansion of the EUV order book is slower than expected.
• Initial High NA sales are delayed, or DRAM fails to adopt High NA after 2028.
• Weak China demand, inflation pressure, or export controls lead to more order delays.
• ASML's cleanroom expansion and hiring pace fail to support delivery of about 90 EUV tools.

What to watch

• Whether cleanroom expansion at Brainport Industries Campus starts as planned in Q3 2026.
• Whether the ability to deliver about 90 EUV tools next year is validated by orders and capacity progress.
• Whether DRAM/HBM and long-term memory agreements convert into 2028 delivery orders.
• The strength of capex recovery in advanced logic/foundry at 2nm, 3nm, and A16 nodes.
• The pace of High NA EUV adoption and its impact on valuation multiples.
• Whether the market revises up earnings expectations for 2026-2027.