ASML: Reinitiating Coverage; Wide Moat Backed by Technology, Research Budget, and Switching Costs

We reinitiate coverage of ASML, maintaining our EUR 700 fair value estimate and wide moat supported by intangible assets, cost advantages, and switching costs. We believe ASML will remain the top lithography provider for semiconductor foundries, or fabs, over the next 2 decades due to its technological leadership, large research and development budget, which acts as a barrier to entry, and high switching costs for fabs, whose plants are designed around ASML’s lithography machines. We also maintain our Exemplary Morningstar Capital Allocation Rating for the firm. ASML shares are undervalued by 10%, trading in EUR 630 territory.