
Mizuho Optimistic About This Underperforming Chip Stock
Mizuho analysts have shifted their focus from TSMC to ASML as their preferred semiconductor stock, citing an attractive risk-reward scenario given ASML’s recent underperformance relative to its peers.
In a report, Mizuho pointed out that while TSMC’s shares experienced a 16% increase in September, ASML only managed a meager rise of 0.8% during the same timeframe.
The analysts now consider ASML their top pick for year-end gains and see it as a strong long-term investment choice. One analyst expressed enthusiasm, stating that ASML is now their favored semiconductor stock heading into the year-end, emphasizing the stock’s underperformance compared to both the wider semiconductor sector and key competitors like Nvidia and TSMC. They perceive a “compelling risk-reward with limited downside” for ASML.
Mizuho noted that market sentiment around ASML has been dampened by concerns over Intel’s budget cuts and risks associated with potential China restrictions. However, they believe this presents a buying opportunity, as such negative sentiment appears to be largely priced into the stock.
Looking forward, Mizuho anticipates stable third-quarter results for ASML, with an important investor day scheduled for November 14. They expect management to maintain its long-term revenue targets for 2025, currently estimated between €30-40 billion.
The analysts suggest that market expectations may have settled around €32-33 billion, indicating that even slight adjustments in estimates could pave the way for a rally.
Additionally, Mizuho believes ASML is well-positioned for an increase in spending on lithography tools, projecting that the company’s valuation could revert to a forward price-to-earnings ratio of 30-32. With 2024 earnings per share estimates trending downward, Mizuho perceives limited downside risk and significant upside potential for the stock.
They concluded by stating that ASML’s valuation could expand towards a 30-32 forward P/E range, compared to the currently compressed level of 26-27.