The European stock markets faced downward pressure on Monday as the technology sector joined the retreat following concerns about the profitability of rivals due to China's improved, cost-effective AI model. The pan-European STOXX 600 index dropped by 0.7% at 0815 GMT, with US futures indicating a decline; the Nasdaq Composite fell by 3.1% and the S&P 500 futures dropped by 1%. Meanwhile, the startup DeepSeek introduced a free assistant claiming reduced chip costs and data requirements, challenging the prevalent financial market assumption of soaring demand for technology driven by AI.
This news rattled European tech stocks, which plummeted by 4.5%. Among those affected, ASML, the Netherlands-based chip equipment manufacturer, saw its shares fall by 8.7%. Siemens Energy, which provides electrical hardware for AI infrastructures, fell by 17.7%, as did AI-favorite Schneider Electric, which dropped 8.1%. These declines come at a time of great importance as the upcoming week is rich with key interest rate decisions from central banks around the world, particularly the Federal Reserve and the European Central Bank. Further economic data releases, including GDP figures for the Eurozone and Germany and inflation data from major European economies, are also scheduled.
ASML's stock has taken quite a hit over the past months due to uncertainty about the AI industry's future. Currently trading at around $732, ASML shares have plummeted nearly 35% from their peak of $1,104 on July 11. With significant earnings results on the horizon, expected on Thursday, analysts are closely observing to see how the company's stock will react. Recently, ASML reported earnings of 7.5 billion euros, increasing from 7.2 billion euros, largely due to the sale of 106 lithographic systems compared to 89 in the preceding quarter. Despite this growth, the stock declined 15% after ASML predicted its gross margin would decrease from 51.5% to 50.8%. For Q4, the company's earnings are estimated between 8.8 billion and 9.2 billion euros, with gross margins forecasted to remain under pressure between 49% and 50%.
DeepSeek's emergence—a new AI model anticipated to shake up the industry—will likely also influence ASML’s stock performance. Analysts are optimistic about ASML’s potential, setting the average price target for the stock at $927, indicating significant upside from the current prices.
The future performance of ASML's stock is being tightly monitored after its significant downturn and the recent meetings of analysts advising on the stock. Both JPMorgan and Goldman Sachs have rated ASML with 'Overweight' and 'Buy' ratings respectively; JPMorgan set a target price of 1,057 euros, reflecting confidence about the stock's recovery. On the other hand, the Goldman Sachs projection stands at 1,010 euros, betting on strong demand for AI chips and the company's pivotal position within the semiconductor industry.
Despite some concerns about quality and supply chain issues, ASML is projected to generate strong earnings relative to the substantial increase seen last year when the company’s revenue surged from $13.2 billion to over $30 billion due to strong domestic manufacturing growth, especially under the CHIPS Act enacted by the Biden administration.
Looking at past performance and broader economic indicators, the ASML stock is expected to trend lower until the quarterly results are released. Presently, ASML is forming bearish patterns including lower lows and lower highs—indicating volatility as it approaches key support levels near $645. Any break above the resistant $800 mark would signal improved investor sentiment.
Investors are braced for potential volatility over the next few days, with analysts projecting up to 7.1% price movement post-announcement based on current sentiment shifting between calls and puts on the options market, currently slightly favoring bullish stances.
On the earnings front, ASML has set the bar high before its quarterly report, forecasting substantial growth relative to last year’s performance, making the upcoming results not just another corporate report, but a pivotal moment capable of shifting the stock's fortunes sharply.