ASML Leads European Tech Lower as Investors Look for Value

© Reuters.

By Dhirendra Tripathi

AiVIF.com – ADRs of ASML (NASDAQ:ASML) tumbled 5.4% on Nasdaq in Tuesday’s premarket trading, leading the broader European technology sector lower amid a broad rotation out of growth stocks and into value.

Chipmakers STMicroelectronics (PA:STM) and Infineon (DE:IFXGn) were also down by over 4% as some of the year's most profitable trades to date were closed out. Payments company Adyen (AS:ADYEN), another tech darling of European markets, fell 5.0%.

New Street analyst Pierre Ferragu earlier downgraded ASML to ‘neutral’ with a 660-euro target, 2.5% lower than its current level of 670 euros in Amsterdam trading.

Ferragu kept his five-year outlook on the stock but said record valuations limited upside possibility, while the company has already exhausted most of the scope to expand margins amid the worldwide scramble for chipmaking equipment.

At the time of providing its second-quarter update in July, ASML said it expects third-quarter net sales of around 5.3 billion euros, with a gross margin of just over 50%.

New Street's Ferragu said he sees demand for Memory chips and NAND chips slowing down in 2022.

The Dutch company makes machines used by world’s top companies to produce chips that go into mobiles, laptops, TVs and cars. It also provides software and services that help those companies mass produce patterns on silicon. For some of the most advanced semiconductors that go into laptops, mobiles and other digital devices, ASML is the only maker of equipment used to make them.

For companies like ASML and its clients, the pandemic brought the opportunity of a lifetime as homes doubled up as offices and demand for digital devices boomed. As waiting lines for products like mobiles and laptops lengthened, chipmakers have begun to build new capacity. While that investment cycle is likely to last years, easy monetary policy meant that investors discounted almost all of it ahead of time in the last 18 months.