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ASML Holding NV (Nasdaq: ASML) recently received a significant endorsement from Barclays, with an upgrade to Overweight from Equal Weight and a revised price target of $1,243, up from $1,005.

This 24% increase follows a challenging period for ASML, marked by a 20% drop from its recent peak amid broader market turbulence and specific concerns over China-related risks and AI investment returns.

Despite these hurdles, Barclays sees the recent decline as an opportune moment to invest in what it considers one of the highest-quality companies on a global scale.

Analyst insights

Barclays’ optimism stems partly from its projections of robust growth for ASML, expecting a 27% growth in 2025 and 15% in 2026. This outlook is fueled by the anticipated demand for advanced semiconductor technologies, particularly in AI, which is believed to dampen the cyclicality traditionally seen in leading-edge tech demand.

Simon Coles of Barclays highlighted an expected improvement in orders for ASML’s extreme ultraviolet (EUV) lithography machines, despite looming negative news from China potentially impacting the semiconductor capital equipment sector globally.

Q2 earnings overview

ASML’s financial performance in the second quarter of 2024 showcased mixed results. While the company’s revenue dropped by 9.5% year-over-year to €6.24 billion, its net bookings surged significantly.

The total bookings for the quarter reached €5.57 billion, a 54% sequential increase, with EUV machine bookings alone accounting for €2.5 billion.

Market dynamics and geopolitical impacts

The broader semiconductor market has faced considerable volatility, exacerbated by geopolitical tensions and U.S. export controls, particularly concerning China.

ASML, with a significant portion of its sales reliant on China (49% of total system sales in Q2), faces heightened risks from these tensions.

The ongoing U.S.-China trade uncertainties pose substantial threats to ASML’s operations, potentially impacting future revenue streams from one of its largest markets.

Fundamental business health

Fundamentally, ASML continues to exhibit strength through its technological leadership in lithography systems, crucial for manufacturing the most advanced semiconductors.

The company’s strategic emphasis on EUV technology and its role in driving next-generation semiconductor fabrication positions it well within the industry.

Looking ahead, ASML has guided for third-quarter sales between €6.7 billion and €7.3 billion, reflecting cautious optimism amid market uncertainties. The company expects similar total net sales for 2024 compared to the previous year but with a slightly lower gross margin.

As we transition from examining ASML’s fundamentals, market position, and recent financial performance, it becomes evident that while the company faces notable challenges, particularly from geopolitical risks and market dynamics, its core business strengths and growth prospects remain solid.

Now, let’s delve into the technical analysis to further discern ASML’s stock price trajectory and assess whether the current market conditions truly justify a buy rating post-Barclays’ optimistic upgrade.

Long-term bullish trend remains intact

Although ASML’s stock has dropped more than 20% from its peak made earlier this month, it continues to remain in a long-term uptrend as can be seen on the charts. The stock has more than doubled from its October 2022 lows of $364 and has recently again found support near its medium-term support at $850.

(Click on image to enlarge)

ASML chart by TradingView

Keeping that in mind, short-term bullish traders can initiate fresh long positions at current levels with a stop loss near $848. Investors who continue to remain bullish in the stock must keep a wider stop loss at long-term support near $696.

Traders who are bearish on the stock must refrain from shorting the stock at current levels. Fresh short positions should only be considered if the stock gives a daily closing below $850.

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