Morgan Stanley stated that as the AI wave drives the capacity expansion of advanced processes and memory chips, ASML is standing at the starting point of its strongest profit cycle in history.

On January 16, according to market reports, Morgan Stanley released a significant research report, with a core view that is very direct: 2027 will be the peak year for ASML's profit growth. The report forecasts ASML's fiscal 2027 sales to reach approximately 46.8 billion euros, with EBIT reaching 19.7 billion euros, and gross margin improving to 56.2%. Earnings per share are projected to be 45.74 euros for 2027, a 35% increase from the previous forecast of 33.94 euros and a 57% year-on-year growth compared to the expected 29.12 euros for 2026. This would represent the highest annual profit growth rate in the company's history.

The report stated that this profit surge is primarily driven by three key engines: robust demand from advanced logic foundries, large-scale capacity expansion in the DRAM memory sector, and demand performance exceeding expectations. The firm issued an extremely strong bullish signal for ASML, significantly raising its price target from 1,000 euros to 1,400 euros, while maintaining an "Overweight" rating and "Top Pick" status.

Demand from advanced logic foundries is stronger than expected, with TSMC's substantial increase in capital expenditure serving as a key catalyst.

The report noted that TSMC, during its Q4 earnings call, provided a capital expenditure guidance of $52-56 billion for 2026, with the midpoint representing a 32% year-on-year increase from the $40.9 billion in 2025. Of this, 70-80% will be allocated to advanced processes. TSMC also hinted that capital expenditure could see further growth in the coming years.

Based on this, Morgan Stanley revised its expectation for TSMC's EUV equipment purchases in 2026 upwards from approximately 20 units to 29 units, and for 2027, significantly increased the forecast from 28 units to 40 units. Analysts anticipate the company will begin building A14 process capacity ahead of schedule, preparing for utilization in 2028. For 2025, TSMC is expected to receive approximately 18 low-NA EUV tools.

Besides TSMC, the improving momentum in process development at Intel and Samsung is also expected to materialize. Morgan Stanley expects these two companies to each purchase 5-6 EUV tools for their foundry/logic businesses in 2027. Overall, approximately 52 tools are projected to be shipped to the logic/foundry sector in 2027, far exceeding the previous expectation of 25-30 units.

Soaring DRAM prices are expected to trigger a wave of capacity expansion, with the DRAM market exhibiting unprecedented strength.

Morgan Stanley indicated that DRAM prices maintained extremely strong momentum in Q4 and Q1, primarily driven by demand for conventional server CPUs and major cloud service providers' AI demand for 2026-27, particularly agent AI.

Capacity scarcity has led to quarter-on-quarter and year-on-year price increases for HBM and general-purpose DRAM reaching nearly unprecedented levels. Morgan Stanley expects this trend to persist for at least 1-2 more quarters, ultimately leading to large-scale capacity construction in DRAM manufacturing, thereby boosting demand for ASML's EUV and DUV tools.

The bank's analysts judge that most of this capacity investment will materialize in 2026-27, preparing for demand in 2027-28.

Morgan Stanley forecasts ASML will achieve approximately 15 billion euros in DUV sales in 2027, with potential upside if NAND construction growth exceeds expectations.

Based on a comprehensive assessment of demand from the logic foundry and memory sectors, Morgan Stanley expects ASML to ship approximately 80 EUV tools in 2027, a record high. This includes about 52 units destined for logic/foundry customers, with the remainder going to memory manufacturers.

Demand performance is better than concerns suggested, with the report noting that Morgan Stanley's research indicates continued strong demand from leading memory chip manufacturers and major players. Analysts expect ASML to discuss demand exceeding previous guidance in the upcoming earnings report.

Morgan Stanley stated that 2026 sales are now expected to be close to flat year-on-year, rather than the significant 15-20% decline previously guided by the company. Analysts also assume this more favorable trend will continue into 2027.

Short-term catalysts include the upcoming Q4 earnings report and strong order bookings. ASML is scheduled to release its Q4 2026 results on January 28, 2026. Morgan Stanley expects:

Order Bookings: Q4 orders are projected at 7.27 billion euros, stronger than Q3's 5.4 billion euros. This includes 19 low-NA EUV tools, primarily from TSMC (9 units) and memory demand from Samsung and SK Hynix. This will be the last time ASML discloses order booking data. Sales: Expected to be 9.675 billion euros, at the high end of the guidance range (9.2-9.8 billion euros), representing 4% year-on-year growth. Full-year sales are projected to reach 32.6 billion euros, a 15% increase year-on-year, consistent with last quarter's guidance. Margins: Q4 gross margin is forecast at 51.8%, near the midpoint of guidance (51%-53%), up 20 basis points sequentially. Analysts maintain expectations for positive commentary on 2026 margins. 2026 Guidance: The company is expected to provide guidance for double-digit sales growth (+12%) for fiscal 2026, approximately 36.5 billion euros. Management might continue to use conservative language but is expected to moderate the degree of conservatism.

The bank's analysts project that ASML will achieve sales of approximately 46.8 billion euros in 2027, comprising 36.9 billion euros from system sales and 9.9 billion euros from IBM business revenue. The gross margin is expected to improve from 52.5% in 2026 to 56.2%, with the operating profit margin reaching a remarkable 42.2%, and the EBITDA margin as high as 44.6%.

Morgan Stanley maintains ASML as a Top Pick, valuing it at a 31x P/E ratio with a price target of 1,400 euros. In a bull scenario, based on 2027 EPS of 50 euros and a 40x P/E ratio, the price target could reach 2,000 euros.