An interest rate cut gave the chip stock a boost.
Shares of ASML (ASML 5.12%) were among the winners in the artificial intelligence (AI) sector as the maker of lithography systems that are used to make semiconductors rose on the Federal Reserve’s interest rate cut on Wednesday.
The company also received a positive analyst note, reiterating an outperform rating on the stock. As of 2:06 p.m. ET on Thursday, the stock was up 6.5% on the news.
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ASML gets a much-needed boost
While many of its chip sector peers have soared this year, ASML has struggled with a cyclical slowdown in the market for semiconductor manufacturing equipment and on recent news of export restrictions to China, a key market.
The stock is still down by nearly 25% from its peak in July even after today’s gains.
However, lower rates should help propel the company’s expected comeback. Since ASML relies on selling a relatively small number of very expensive machines, it’s especially sensitive to the economy and interest rates. Lower rates make it easier for companies to borrow to buy its machines. and a rate cut tends to boost the overall economy, which should also encourage demand for its semiconductor equipment.
While tech stocks and chip stocks were up broadly today, ASML’s gain outpaced even the 5% gain of the VanEck Semiconductor ETF.
Barclays maintained an overweight rating on the stock, though it lowered its price target from 1,150 euros ($1,279) to 1,100 euros ($1,224) to reflect the recent slide in the stock and updates to its estimates. Barclays also said it would buy the stock on any weakness.
Can ASML keep gaining?
Interest rates are expected to keep coming down this year and next year, which will provide a tailwind to ASML. The company is also calling for a rebound in demand as new foundries come on line.
With the stock still significantly down from its earlier peak, there’s substantial upside if rates keep coming down and momentum builds in the business.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.
