ASML's "peak moment"! Morgan Stanley: Amid the advanced process expansion wave, 2027 may see the strongest profit growth
Morgan Stanley states that as the AI wave drives the expansion of advanced process and memory chip production capacity, ASML is standing at the start of the strongest profit cycle in its history.
On January 16, according to ZF Trading Desk, Morgan Stanley released a heavy-hitting research report with a very direct core view: 2027 will be the peak year for ASML's profit growth, with expected revenue for ASML's 2027 fiscal year to reach about 46.8 billion euros, EBIT to hit 19.7 billion euros, and gross margin rising to 56.2%. Expected earnings per share for 2027 are 45.74 euros, up 35% from the previous estimate of 33.94 euros, and representing 57% year-on-year growth compared to the 2026 estimate of 29.12 euros. This will be the highest annual profit growth rate in the company's history.
The report states that this profit explosion is driven mainly by three engines: strong demand from advanced logic foundries, large-scale capacity expansion in the DRAM memory field, and demand outperforming expectations. The firm has issued an extremely strong bullish signal for ASML, raising its target price significantly from 1000 euros to 1400 euros, while maintaining an “Overweight” rating and “Top Pick” status.
Strong and Surprising Demand for Advanced Logic Foundries
TSMC’s significant capital expenditure boost becomes a key catalyst.
The report notes that TSMC gave guidance of $52-56 billion capex for 2026 at its Q4 earnings call, with the midpoint up 32% year-on-year, higher than the $40.9 billion for 2025. Of this, 70-80% will be allocated to advanced processes. TSMC also hinted that capex could increase further in the coming years.
Based on this, Morgan Stanley raised its expectation for TSMC's EUV equipment purchases in 2026 from about 20 units to 29 units, and for 2027 from 28 units to a sharp increase to 40 units. Analysts expect the company to build out A14 process capacity ahead of time to prepare for use in 2028. TSMC is also expected to receive around 18 low NA EUV tools in 2025.
Besides TSMC, Intel and Samsung’s momentum in process development is also expected to be seen. Morgan Stanley estimates that both companies will each procure 5-6 EUV tools for foundry/logic operations in 2027. Overall, about 52 tools are expected to be shipped to the logic/foundry field in 2027, far higher than the previous estimate of 25-30 units.
DRAM Price Surge will Trigger Capacity Expansion Wave
The DRAM market is showing unprecedented prosperity.
Morgan Stanley notes that DRAM prices in Q4 and Q1 remain extremely strong, mainly driven by demand for conventional server CPUs as well as major cloud service providers’ needs for AI in 2026-27 (especially agent-based AI).
Capacity shortages have led to almost unprecedented levels of both quarter-on-quarter and year-on-year price growth for HBM and general DRAM. Morgan Stanley expects this trend to last for at least 1-2 more quarters, eventually resulting in large-scale capacity buildout in the DRAM manufacturing field which will drive demand for ASML's EUV and DUV tools.
Analysts at the firm judge that most capacity investment will be implemented in 2026-27, preparing for demand in 2027-28.
Morgan Stanley expects ASML to achieve about 15 billion euros in DUV sales in 2027; if NAND expansion beats expectations, this figure may have further upside.
Based on a comprehensive judgment of logic/foundry and memory demand, Morgan Stanley estimates that ASML will ship about 80 EUV tools in 2027, a historic high. This includes about 52 units to logic/foundry clients, with the remainder to memory manufacturers.
Demand Outperforming Concerns
The report indicates that Morgan Stanley's research shows continued strong demand among leading memory chip makers and major manufacturers. Analysts expect ASML to mention demand outperforming previous guidance in this financial report.
Morgan Stanley states, 2026 revenue is expected to be flat year-on-year rather than seeing the previously guided sharp drop of 15-20%. Analysts also assume that this positive trend will continue into 2027.
Short-term Catalysts: Upcoming Q4 Financial Report & Strong Orders
ASML will release its Q4 results on January 28, 2026. Morgan Stanley expects:
Order volume: Q4 orders are expected to be 7.27 billion euros, stronger than Q3's 5.4 billion euros. This includes 19 EUV low NA tools, mainly from TSMC (9 units) as well as Samsung and SK Hynix for memory demand. This will be the last time ASML discloses order data.
Revenue: Expected at 9.675 billion euros, at the high end of guidance (9.2-9.8 billion euros), up 4% year-on-year. Full-year revenue is expected at 32.6 billion euros, up 15% and matching last quarter’s guidance.
Profit margin: Q4 gross margin is expected to be 51.8%, close to the guidance midpoint (51%-53%), up 20 basis points quarter-on-quarter. Analysts maintain a positive expectation for profit margin in 2026.
2026 guidance: The company is expected to give double-digit sales growth guidance (+12%) for 2026 fiscal year, about 36.5 billion euros. Management may continue to speak of declines, but with reduced conservatism.
Analysts expect ASML to achieve about 46.8 billion euros in revenue in 2027, of which system revenue is 36.9 billion euros and IBM business revenue is 9.9 billion euros. Gross margin will rise from 52.5% in 2026 to 56.2%, operating margin will reach an astonishing 42.2%, and EBITDA margin will be as high as 44.6%.
Morgan Stanley maintains ASML as its top pick, using a 31x P/E valuation, with a target price of 1,400 euros. In the bull case, based on 2027 earnings per share of 50 euros and a 40x P/E ratio, the target price could reach 2,000 euros.
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