Critical chip equipment supplier ASML is set to face softer demand from buyers of its products in the coming years — and the artificial intelligence boom won’t be enough to offset these downside risks, according to analysts at investment bank UBS . In a fresh research note, UBS downgraded ASML to “neutral” and cut its price target on the stock to 900 euros ($997.16) from 1,050 euros previously, stating that it expects to see a “plateau in litho intensity,” or the percentage of cost associated with lithography tools versus other wafer fabrication equipment tools, in both logic and memory chips. Part of the cause for this plateau, UBS analysts noted, is a trend of “EUV tool reuse” among memory chipmakers, which are using existing inventory of ASML EUV machines they already own to produce new chips, rather than buying fresh equipment. Such memory chip makers include Samsung and Nvidia supplier SK Hynix. “Despite ASML being one of the best fundamental stories in the European tech sector with strong management execution, we downgrade the stock to Neutral as we expect EPS [earnings per share] to grow at a 13% CAGR [compound annual growth rate] in 2025-30E vs 24% in 2018-25E which we believe justifies the “normalization” of multiples relative to peers and history,” analysts at the bank said in the note, which was published Wednesday. ASML is behind a key technology involved in chip manufacturing known as EUV, or extreme ultraviolet radiation. The company’s EUV lithography machines generate a short wavelength of light in large quantities to print small, complex designs on microchips. UBS expects lithographic tools’ share of of total wafer fabrication equipment spending coming down from a 30% peak in 2025 to 25% in 2027 before increasing again with the new generation of so-called “High NA” EUV tools beyond 2028. But the investment bank said in its note Wednesday that ASML’s machines are set to face a slowdown in demand, in part due to an “architecture shift” to gate all around architecture, or GAA, as well as “some slowdown in EUV layer additions in DRAM,” or Dynamic Random Access Memory. GAA architecture refers to a transistor design that places a gate on all four sides of the channel of an electric current flow. This is meant to improve a chip’s performance and power efficiency. DRAM is a type of memory chip that’s needed for a computer to function. Meanwhile, AI end-use revenues — which it says will account for only 10% to 15% of group revenues in the next three to five years — “may not be sufficient to offset” these demand normalization factors, UBS said. It added that it also sees spending on lithographic tools in China overall normalizing due to the risk of further export controls imposed by the U.S. and the Netherlands. An ASML spokesperson declined to comment on the downgrade when contacted by CNBC. Shares of the company were down more than 6% Wednesday, alongside a raft of other chip stocks , following a deep slide in Nvidia shares Tuesday . Nvidia’s share price drop, which erased around $279 billion from its market capitalization, was the single biggest one-day market cap drop for a U.S. stock in history.
