JP Morgan (JPM) has identified ASML Holding NV (NASDAQ:ASML) as a key beneficiary of the booming data centre artificial intelligence (AI) sector, projecting substantial upgrades to the company’s long-term guidance.
The investment bank's analysis highlights the increasing demand for semiconductor capacity driven by AI, particularly in data centres, as a critical growth driver for ASML over the next five years.
Currently, servers constitute approximately 10% of the overall semiconductor market. However, JPM's detailed calculations suggest that data centre AI will become the primary catalyst for semiconductor capital expenditure shortly.
By 2027, the capacity required for leading-edge logic in data centre AI is expected to be 2.8 times that of Apple, underscoring its growing importance.
Moreover, the report projects a need for an additional 500,000 wafers in dynamic random-access memory (DRAM) capacity by 2027. This demand surpasses Gartner's forecast for overall DRAM capacity additions.
Advanced logic and DRAM production are heavily dependent on lithography, a process essential for creating the intricate patterns on semiconductor wafers. ASML, a leader in lithography technology, is poised to benefit significantly from these trends.
JPM believes ASML will need to revise its compound annual growth rate (CAGR) forecasts for advanced logic and DRAM capacities. Previously, ASML guided for a 12% CAGR in advanced logic and a 4.6% CAGR in DRAM from 2020 to 2030. Given the surge in AI-driven demand, these figures are likely to be updated.
Additionally, ASML is expected to profit from a shift towards higher average selling price (ASP) products, particularly the high-numerical aperture (High-NA) extreme ultraviolet (EUV) lithography machines. These advanced machines are crucial for producing the next generation of semiconductors.
ASML remains one of JPM’s top sector picks for 2024. It rates the stock 'overweight' with a price target of €1,100. The expected growth in AI-driven semiconductor demand and the company’s leading position in lithography technology support this optimistic outlook.