New Street’s Ferragu ‘Tactically’ Downgrades ASML (ASML) and Applied Materials (AMAT) to Neutral, Remains Positive on Taiwan Semiconductor (TSM)

September 28, 2021 6:49 AM EDT
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New Street Research analyst Pierre Ferragu downgraded two semiconductor stocks today as he believes semicap expectations are lofty.

Both shares of the Netherland-based ASML (NASDAQ: ASML) and Applied Materials (NASDAQ: AMAT) were “tactically downgraded” to Neutral, but the analyst remained long-term positive on both.

On AMAT, Ferragu wrote, “valuation vs. the SOXX is still very reasonable, but we don’t see a near-term catalyst for a rerating.” The price target is $140.00 per share.

On ASML, he said in a client note: “Record valuation, absolute & relative, limited upside next year as ASML remains supply constraint in EUV and we don’t expect a guide-up in margins. We maintain our positive 5-year outlook.”

Finally, Ferragu remains positive on Taiwan Semiconductor Manufacturing Company (NYSE: TSM).

“We expect the company to beat on margins and free-cash-flow, and we see material valuation upside,” Ferragu said.

The analyst also sees a risk of a correction in Memory as demand growth is likely to slow down in 2022 vs 2021. On NAND, Ferragu sees room for tactical downside in 2022, while on Foundry and Logic he commented:

“We see risks in terms of demand for the iPhone and in PCs for next year, but we doubt these partial and (for the iPhone) short-lived adjustments will have a major impact on investment plans, or on foundry pricing power. Current capex plans & expectations suggest mid-single digits growth. Beyond 2022, capex should at best plateau and potentially pullback, as capex intensity, even if still on an upward trend, will need to normalize.”

Shares of TSM are down 1.5%, while ASML and AMAT stocks are down 5.4% and 3.7%, respectively.

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