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ASML has become Europe’s most valuable technology company thanks to the AI boom. Nicolas Economou/NurPhoto via Getty Images
ASML’s AI-driven growth has driven the stock to record highs, consistent with trends seen in Microsoft, Nvidia, and Arm, but despite bubble concerns, current signs suggest otherwise suggests.
Morgan Stanley research ranks ASML as the second most undervalued European stock in the pharmaceutical sector after Novo Nordisk.
The Dutch group’s share price has soared more than 20% since the start of the year, making it Europe’s most valuable European tech company, driven by rising demand for its chip technology on the back of rapid advances in AI.
Because ASML makes the hardware that manufacturers buy to make their own chips, the piling up of orders from other semiconductor manufacturers has had a positive effect on ASML.
Morgan Stanley research tracking 277 investment funds worth a total of $1.2 trillion shows demand has pushed the semiconductor giant into overvalued territory, near the top of stock rankings among global fund managers. It suggests that.
Over-owned stocks are typically considered a negative signal that the stock’s price is higher than its underlying market value, and a market correction is likely to occur.
AI bubble?
Analysts have long warned of a bubble, with the S&P 500 up more than 24% last year, and markets resisting months of high inflation and rising interest rates.
The AI sector is an increasingly important epitome of this trend.
Nvidia’s stock more than tripled in value last year, but is up 40% this year, vaulting the AI chip pioneer past Amazon to become the fourth most valuable company in the United States.
Shares in British AI darling Arm, owned by SoftBank, soared nearly 50% on the day of its third-quarter results, demonstrating an astonishing level of demand for the company’s royalty-generating AI technology.
Investors are pouring money into the most obvious beneficiaries of demand for AI, including technology companies and chipmakers.
Other sectors could also benefit, said Peter Oppenheimer, head of European macro research at Goldman Sachs, likening the topic to the 18th century canal boom.
The hype divided analysts last year, but concerns appear to have subsided since then.
In August, DeVere Group CEO Nigel Green warned that the buzz around AI was reaching a “climax” as NVIDIA galloped ahead.
“This level of hype is dangerous because it can lead investors to believe that these stocks are a silver bullet for building long-term wealth,” he said. “And they’re not, at least not just themselves.”
But another trend that has pushed ASML into “undervalued” territory is perhaps the result of a growing herd mentality in recent years among investors eager to tap into the stock market, which continues to generate huge profits. it is conceivable that.
Fund managers tend to select a collection of highly valued stocks in the form of an index, with each company’s shares decreasing as the value decreases.
That’s why the Magnificent Seven, a group of U.S. stocks that includes Microsoft, Apple and Tesla, helped drive positive returns for some S&P 500 index funds last year.
As for ASML, past trends suggest it may continue to ride this bullish wave for some time.
“Since the October market lows, undervalued stocks have outperformed both the index and undervalued stocks,” said Marina Zaborock, chief European equity strategist at Morgan Stanley. “This is a common phenomenon in rising markets.”
“Interestingly, the largest overweight in European funds has been the best performer of the three fund groups since the October lows, a trend that has broadly continued since 2017.”
ASML loses to Samsung
Not everyone is joining the crowd and piling into ASML stock, and as the chip wars continue around the world, the company is likely more concerned about the fundamentals of the business than the actions of its fund managers. .
The group was dealt a blow this week after Samsung announced it would exit its entire 0.4% stake in ASML, Bloomberg first reported citing financial disclosures from the South Korean tech giant.
The group also faces a challenge from camera and printer maker Canon, which is trying to undercut ASML with a $150 million chip-making machine.
Shares in the Dutch semiconductor giant fell more than 3% last week.
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