Jefferies Downgrades ASML, ASM International on 1% Spending Decline Forecast

Jefferies has downgraded the ratings of two prominent Dutch semiconductor equipment companies, ASML Holding N.V. (ASML.US) and ASM International N.V. (ASMIY.US), due to pessimistic expectations for industry spending. This decision reflects growing concerns about the outlook for capital expenditures in the semiconductor industry, which has been a significant growth driver for these companies.

The downgrade comes amidst a backdrop of various challenges facing the semiconductor industry, including geopolitical tensions, supply chain disruptions, and slowing demand for electronic devices. These factors have led to a more cautious outlook for industry spending, as companies adopt a more conservative approach to investment decisions.

ASML and ASM International are key players in the semiconductor equipment market. ASML is a leading supplier of lithography systems, while ASM International specializes in deposition and etching equipment. The downgrade by Jefferies suggests that these companies may encounter headwinds in the coming quarters as industry spending slows.

Jefferies' decision to downgrade the ratings of these two companies is a notable development, given the firm's expertise in the semiconductor industry. This move is likely to be closely monitored by investors and analysts, who will be looking for further indications of weakness in the industry.

Analyst Janardan Menon, in a report to clients, stated that Jefferies predicts a 1% decline in semiconductor equipment spending by 2026, contrasting with market consensus expectations of double-digit growth. This pessimistic outlook is driven by two main factors: a projected 16% drop in DRAM wafer fab equipment spending and a further decline in semiconductor equipment spending in China.

Menon's analysis indicates that ASML's 2026 sales are expected to decrease by 2%, while ASM International's sales are projected to grow by 3%. The 2026 earnings per share (EPS) estimates for ASML and ASM International are 17% and 13% lower than market consensus, respectively. Despite the downgrade, Jefferies has raised the target prices for ASML and ASM International to 690 euros and 530 euros, respectively, from 660 euros and 490 euros.

In addition to the expected decline in DRAM-related spending, Menon noted that while TSMC's 2nm process equipment installation may remain stable, advanced logic wafer fab equipment spending is expected to see a slight increase next year. Intel's 18A process node progress is reported to be in line with expectations, which will support its 2026 equipment spending. Furthermore, the automotive industry is showing signs of cyclical recovery, which Menon believes will drive mature process capital expenditures outside of China to rebound next year.