ASML (ASML) is positioned to benefit from healthy wafer fab equipment spending and secular growth in extreme ultraviolet lithography, RBC Capital Markets said as it initiated coverage of the stock.

The brokerage said in a Wednesday research note that wafer fab equipment spending is expected to grow 7% in 2026 and 14% in 2027, driven by generative AI demand.

RBC highlighted strong wafer demand across Advanced Logic, Memory and Advanced Packaging, with Memory spending likely to outpace Logic in 2026 and 2027.

ASML has a backlog of 33 billion euros ($38.29 billion) at the end of Q3 of 2025, which should support at least mid-single-digit Systems growth in 2026.

The Services segment is sustaining double-digit growth, according to the note.

The investment firm said that ASML's exposure to China is normalizing, with management expecting it to decline to the 20% range in 2026.

RBC initiated ASML at outperform with a $1,550 price target.

Shares of the company were up nearly 6% in recent Thursday trading.

Price: 1336.36, Change: +72.64, Percent Change: +5.75