"An opportunity for a 70% profit": Bank of America recommends the chip stock
The Dutch company's stock lost almost 11% in two days amid fears of a new Chinese competitor. Bank of America is convinced the market overreacted, maintaining a "buy" recommendation and pointing to a target that suggests a potential jump of more than 70%.
The Dutch equipment company ASML, one of the most important companies in the chip industry, suffered a double blow on the stock market this week. After a 5.9% drop in one trading day, the stock weakened by another 5% the next day, meaning that in just two days it lost almost 11%. The reason for the panic: a report that China is developing DUV (deep ultraviolet) lithography machines with immersion technology, exactly the field where ASML dominates the global market almost alone.
To understand why this is so alarming, one must remember that ASML is the bottleneck of the entire chip industry. Its machines, which cost tens and hundreds of millions of dollars each, are what allow manufacturers like TSMC, Samsung, and Intel to produce the most advanced chips in the world. Any sign that this monopoly might crack sends investors to sell first and ask questions later.
However, Bank of America thinks the reaction is exaggerated. The bank's analysts reiterated a "buy" recommendation and even defined the stock as a top pick, with a target price of $2,845 for shares traded in the US. This represents an upside potential of more than 70% relative to the price at the time of the review.
According to analyst Didier Samama, the Chinese threat is limited in scope. China is indeed an important market for ASML, accounting for about 20% of total sales and about 44% of DUV revenues. However, he emphasizes, to replace ASML, China would need to develop a local alternative with similar levels of output, precision, and operating costs, and this is an extremely high hurdle.
"Even in a scenario where China manages to produce 20 machines of this type on its own, the impact on ASML would amount to 1.4 billion euros of expected sales in 2027 alone, i.e., about 2.4% of turnover," the analyst notes.
Hence, according to him, the market sell-off is "exaggerated," and current prices represent an attractive opportunity. The bank is not alone in its position: of all the analysts covering the stock, 22 rate it as a buy or strong buy. The average target price is $2,172.27, meaning an expectation of an increase of more than 30%.
And what does this mean for you? Even if you have never bought an ASML stock directly, there is a good chance you are exposed to it. The company is a significant component of many global indices, and pension funds, advanced training funds, and provident funds that track global stock indices almost certainly hold it. An 11% fluctuation in such a company is felt, even if only slightly, in your long-term savings as well.
Furthermore, the story directly concerns Israeli investors interested in the local chip industry. Companies like Tower, Nova, and Camtek operate in the same supply chain, and any tremor in the core of the industry affects the sentiment towards them.
However, it is worth remembering that an analyst's recommendation, as impressive as it may be, is not a guarantee. High target prices reflect an optimistic scenario, and the geopolitical tension surrounding chips between the US, China, and Europe is only intensifying. The question of whether the current decline is an opportunity or a warning sign depends largely on how much China is truly capable of closing the technological gap.
