Mizuho Analysts Shift Top Semiconductor Pick to ASML, Highlight Compelling Upside Potential

Mizuho Securities has shifted its top semiconductor stock pick from Taiwan Semiconductor Manufacturing Company (TSMC) to ASML Holding N.V. (AS: ASML), citing a more attractive risk-reward profile as the stock lags behind its peers.

In a research note, Mizuho analysts pointed out that while TSMC shares saw a 16% gain in September, ASML’s performance remained modest, rising just 0.8% during the same period. This underperformance has led the firm to view ASML as an appealing long-term investment and its preferred semiconductor stock for year-end gains.

"ASML is my new favorite single semi-long into year-end," said one Mizuho analyst, emphasizing the stock's underperformance when compared to the broader semiconductor sector and major industry players such as Nvidia (NASDAQ: NVDA) and TSMC. According to the analyst, ASML presents a "compelling risk-reward with limited downside."

Negative Sentiment Seen as a Buying Opportunity

Mizuho acknowledged that recent concerns over capital expenditure cuts by Intel (NASDAQ:INTC) and potential risks related to China restrictions have negatively impacted market sentiment around ASML. However, the firm views this as an opportunity for investors, suggesting that these concerns have already been priced into ASML's current valuation.

Key Events and Revenue Forecasts

The analysts forecast that ASML's upcoming third-quarter results, expected to be released in October, will likely remain stable. Additionally, the company's investor day on November 14 is identified as a key event to watch. Mizuho does not anticipate that ASML management will revise its long-term revenue targets for 2025, currently estimated between €30-40 billion.

"I sense buyside now expects €32-33 billion at best," the analyst added, suggesting that even modest reductions in revenue expectations could pave the way for a rally in ASML's stock price.

Valuation and Upside Potential

Mizuho analysts also believe ASML is well-positioned for a rebound in lithography tool spending, expecting the company's valuation to expand to a 30-32 forward price-to-earnings (P/E) ratio. Currently, the stock trades within a compressed P/E range of 26-27. With earnings per share (EPS) estimates for 2024 already showing downward adjustments, Mizuho sees limited downside risk and significant potential for upside gains.

"ASML valuation can expand back more towards a 30-32 forward P/E range vs. the compressed level of 26-27 right now," the note concluded, reinforcing Mizuho's bullish stance on the Dutch semiconductor equipment maker.

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