ASML's Tactical U-Turn: A Trade on TSMC's 2027 Capacity Blitz

The immediate catalyst is a sharp tactical shift. On Friday, Aletheia Capital upgraded ASML to "Buy" from "Sell," doubling its price target to $1,500 from $750. This isn't a long-term bet on AI's future; it's a direct response to a near-term, concrete demand signal. The firm's core thesis hinges on a single, massive customer: Taiwan Semiconductor Manufacturing Company (TSMC).

Aletheia now expects TSMC alone to install 40-45 EUV tools as it expands its advanced capacity by 40-50% in 2027. This is the specific catalyst driving the upgrade. It represents a significant step-up in ASML's revenue and earnings power, far exceeding current consensus expectations. The brokerage projects ASML's Low-NA EUV revenue will grow by roughly one-third in fiscal 2026 before accelerating to 50-60% growth in fiscal 2027, supported by higher volumes and a richer product mix.

This demand is directly tied to TSMC's aggressive process roadmap. The company has already begun risk production of its 2 nm process in July 2024, with mass production targeted for the second half of 2025. Each new node, especially the transition to gate-all-around transistors, requires more complex and expensive EUV lithography. TSMC's plan to scale capacity by 40-50% in 2027 is a direct function of this node transition, creating a powerful, near-term tailwind for ASML's core business.

The bottom line is a clear, event-driven setup. Aletheia's upgrade is a tactical bet that TSMC's announced capacity expansion will materialize as planned, driving a measurable acceleration in ASML's EUV revenue. The stock's recent level of $1,069.86 implies substantial upside to the new $1,500 target, assuming this specific demand engine fires on schedule.

Financial Impact: The 2026-27 Earnings Power Shift

The catalyst for ASML's upgrade is a fundamental acceleration in its core business. Aletheia Capital's bullish case hinges on a massive, multi-year capacity expansion by Taiwan Semiconductor Manufacturing Company (TSMC). The brokerage now expects TSMC alone to install 40-45 EUV tools in 2027 as it ramps advanced capacity by 40-50%. This single customer commitment is the linchpin for a dramatic step-up in ASML's earnings power.

The financial projections reflect this shift. For fiscal 2026, the firm expects Low-NA EUV revenue to grow by roughly one-third. That growth is set to accelerate sharply in 2027, with projections calling for 50-60% growth in that segment. This isn't just incremental-it's a doubling of the growth rate. Overall sales are forecast to grow in the mid-teens in FY26, accelerating to the mid-twenties in FY27. These numbers are a significant beat, as they exceed both company guidance and current consensus estimates.

This outlook is supported by ASML's strong recent performance. The company has delivered 22.77% revenue growth over the past 12 months and maintained a robust 19% compound annual growth rate over five years. The upgrade implies a fundamental change in the valuation trajectory. The market is now pricing in a multi-year period of accelerating sales and profit growth, driven by a single, massive customer investment. This moves the story from steady execution to a clear inflection point in earnings power.

Valuation and Risks: The Price of Optimism

The bullish case for ASML is now priced for perfection. The stock trades at a forward price-to-earnings ratio of 38, a premium that implies investors have already baked in the company's expected growth from its massive capacity expansions and resilient demand. The recent upgrade from Aletheia Capital, which doubled its price target to $1,500, suggests the market is catching up to this optimistic outlook. That target implies roughly 40% upside from recent levels, a move that would require flawless execution on multiple fronts.

The primary risk to this thesis is China. The country is not just a major market-it is a direct technological threat. ASML's CEO has already warned that China's net sales in 2026 are expected to decline significantly. More critically, a reverse-engineered EUV prototype is under development by a team of former ASML engineers in Shenzhen. While still years from producing working chips, the existence of this prototype signals that China's push for semiconductor independence is accelerating faster than anticipated. This creates a long-term erosion risk to ASML's monopoly, even if the immediate sales impact is contained by export controls.

Execution risk is the second major headwind, particularly for ASML's largest customer, TSMC. The Taiwanese foundry is aggressively expanding, with plans for a new $49 billion plant for its 1.4nm process. This expansion is predicated on achieving better-than-expected yields, which is a delicate balancing act. The high cost of the necessary equipment-High-NA EUV machinery costs $400 million apiece-adds immense financial pressure. Any delay in construction or a stumble in yield ramp could disrupt TSMC's production timeline, directly impacting ASML's revenue from its most critical client.

The bottom line is that the stock's high valuation leaves little room for error. The bullish case depends on ASML maintaining its pricing power and capacity utilization while navigating a geopolitical and technological storm. The recent 33% rally over the past 120 days has already rewarded much of the good news. For the $1,500 target to be met, the company must not only deliver on its own expansion but also shield itself from the dual pressures of a declining Chinese market and the execution challenges of its most important customer's next-generation build-out.

The Trade Setup: Entry, Targets, and Catalyst Timeline

The stock is already deep in the rally, up 54.36% year-to-date and trading near its 52-week high of €1,142. With a forward P/E of 38, the market's optimism is clearly baked in. This isn't a buy-and-hold story; it's a tactical trade on the next leg of the TSMC capacity blitz. The risk is that the stock has already priced in the good news, leaving little room for error.

The near-term catalyst is the company's own Q4 2025 earnings report, expected in January. Guidance will be key. Management has already signaled a strong quarter, with Q4 sales forecast between €9.2 billion and €9.8 billion. Any miss or cautious outlook could trigger a pullback, especially given the elevated valuation. The broader analyst consensus is a "Moderate Buy" with an average price target of $1,172, implying roughly 9% upside from current levels. That target provides a clear, near-term ceiling.

The bigger, longer-term catalyst is TSMC's accelerated build-out in Arizona. The company is set to start installing equipment into its Fab 21 phase 2 in the third quarter of 2026, with mass production of its N3 technology targeted for 2027-several quarters ahead of schedule. This is the direct pipeline for ASML's EUV machines. The faster TSMC builds, the sooner ASML sees that revenue. The stock's recent 33% gain over the past 120 days suggests this capacity expansion is already in the price. The trade hinges on whether execution continues to beat expectations.

The bottom line is a setup with asymmetric risk. The stock has rallied hard, and the forward multiple is rich. The near-term path of least resistance is up on Q4 earnings and continued TSMC momentum. But the entry point is not cheap. For a tactical position, the move should be timed around the January earnings report, with the $1,172 analyst target as the primary upside catalyst. The key risk is that the stock has already run, and any stumble in the TSMC timeline could see it retrace sharply.