Investing.com -- UBS has reinstated ASML as its top pick in the European semiconductor sector, raising its price target to €1,900 from €1,600 and lifting its 2027 and 2028 earnings estimates well above consensus.

Shares in the world’s biggest chip equipment maker rose 3.5% in Amsterdam by 09:00 GMT.

The stock has lagged peers meaningfully this year, rising around 40% year-to-date versus gains of 48% to 70% for rivals including AMAT, KLA, and LAM, and even further behind ASML’s own customers such as Micron and SK Hynix.

Analysts at UBS see that underperformance as an opportunity, noting that ASML now trades at just a 6% premium to U.S. large-cap peers on a 12-month forward price-to-earnings basis, against a 10-year average premium of 84%.

ASML has the “most attractive risk/reward in the sector,” analysts led by Francois-Xavier Bouvignies said in a note.

The bank’s bullish case rests on three drivers. First, UBS pushes back against growing market fears that ASML could become a bottleneck constraining semiconductor supply.

Analysts argue those concerns are overstated, estimating that ASML’s 2027 capacity can support more than 50% year-on-year growth in leading-edge wafer output, well ahead of projected demand growth of around 25-30%.

“While productivity gains may modestly dilute litho intensity as other process steps (deposition, etch) struggle to keep pace, we do not expect ASML to act as a bottleneck in the next 12/18 months,” they wrote.

Second, the team sees ASML’s heavy exposure to the memory market as a key underappreciated driver. The company is "the most memory-exposed semi-cap name," the analysts stressed, with roughly 30-35% of revenues tied to memory by 2026 compared to 25-30% for U.S. peers.

That exposure has already translated into stronger growth — a 23% memory revenue compound annual growth rate between 2020 and 2025 versus around 6% for peers — and UBS expects it to continue as DRAM node shrinks drive increased lithography intensity through 2028.

Finally, UBS argues the case for High NA EUV, ASML’s next-generation lithography technology, remains intact despite some delays in adoption by TSMC. The bank estimates High NA can deliver cost savings of 20-40% on critical layers compared with alternative patterning approaches, and sees adoption coming within two to three years.

“Our analysis suggests High NA can deliver >100% throughput gains vs. most alternatives, reinforcing its long-term adoption case,” the note said.

After revising estimates, UBS now forecasts EPS of €48.42 in 2027 and €59.73 in 2028, roughly 15-20% above consensus.

“We see ASML as one name still offering attractive risk/reward in Europe semis, and we reinstate it as our top sector pick,” the analysts wrote.