Emerging from a prolonged 14-month downturn, ASML Holding NV appears to be gaining fresh momentum.

A November 26 Morgan Stanley research report highlights dual tailwinds for the global lithography leader: surging DRAM demand and advanced logic chip requirements, positioning ASML for robust growth in FY2026-2027.

**DRAM Cycle Strengthens, Fueling EUV Demand** The report underscores the DRAM market's vigorous expansion, noting ASML's entrenched position during technology transitions from 1a/1b to 1γ/1c nodes. Each node advancement escalates EUV lithography layers—for instance, 1c nodes require 5-6 layers—sustaining demand for ASML's extreme ultraviolet systems. Samsung and SK Hynix are projected to drive clear demand in FY2026, buoyed by commodity DRAM needs and sharp price hikes.

**3nm Adoption Accelerates, AI Giants Drive Orders** Foundry sector optimism grows as TSMC reportedly tests 3nm prototype performance, potentially accelerating rollout beyond initial 2028 targets at its Arizona fab. ASML benefits directly, as TSMC’s 3nm process relies on its EUV tools to deliver chips with superior performance, lower power, and smaller footprints.

AI’s explosive growth further catalyzes demand. Nvidia’s record quarterly revenue—with CEO Jensen Huang describing Blackwell GPU interest as "off the charts"—signals strong foundry equipment orders for ASML in FY2026/27, as TSMC may expand 3nm capacity to meet demand.

**Valuation Reset After 14-Month Slump** ASML’s downturn, extended to 14 months (July 2024–September 2025) due to geopolitical uncertainties, contrasts with typical 8-10-month cycles that compress forward P/E from 30-35x to 18-22x. Weak foundry spending (excluding TSMC) and order softness drove the decline, compounded by Asian market concerns. However, fears over lithography intensity and pricing pressures have eased, with EUV ASPs expected to rise due to computational lithography adoption.

Sentiment has shifted since summer, with evidence of a "memory supercycle" from DRAM price rallies and Samsung’s HBM3e/HBM4 progress. TSMC’s steady performance and Nvidia’s Rubin architecture shift to A16 chips confirm ASML’s earnings re-rating has begun.

**Margin Resilience Amid DUV Slowdown** While DUV sales face a projected annual decline—linked to softer demand in a key Asian market—ASML’s margins remain sturdy. Higher EUV shipments (48 units forecast for FY2026 vs. 41 in 2025) and Installed Base Management (IBM) contributions will offset pressures. Service margins are expected to improve with EUV fleet growth.

Morgan Stanley forecasts FY2026 gross margins at 52.3%, just 40bps below FY2025’s 52.7%, demonstrating cost control amid DUV headwinds.

**Upgraded Outlook** The bank raised ASML’s target price from €975 to €1,000, maintaining an "Overweight" rating. Recent share weakness offers an "attractive entry point," with ASML named Europe’s semiconductor Top Pick.