Goldman picks 9 semiconductor stocks to pop on new 'extreme ultraviolet' trend

Published Thu, Sep 23 20218:32 PM EDTUpdated Thu, Sep 23 20218:38 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at Goldman Sachs have picked a raft of semiconductor stocks they expect to do well from their involvement in a "leading edge" technology known as extreme ultraviolet lithography, which makes chips much more powerful, and is a significantly larger market than the bank originally forecast. Dutch semiconductor equipment maker ASML is the only company producing a machine that uses extreme ultraviolet lithography, a technology that enables chips to hold vast amounts of data on a tiny scale, and one that took 20 years of research to develop. Goldman forecasts that ASML will ship 71 EUV machines to chip makers in 2025, compared with 44 units this year, and said its next-generation machines sell at an average of 270 million euros ($317 million) each in a Sept. 21 research note. Increasing demand for EUV technology, which enables high-power computing, 5G and artificial intelligence is set to benefit ASML and its suppliers, according to Goldman Sachs. "The role of EUV machines will be more extensive than we had previously thought," the analysts stated, adding this is due to demand for newer models. "We now forecast a significantly larger overall lithography addressable market than we previously expected, implying continued strong share of overall semicap equipment spending globally," they added. The bank is buy-rated on ASML and expects EUV technology to be used for a wider variety of chips, and rising gross margins. "While ASML is the core of this ecosystem with 100% global market share in EUV lithography tools, globally there are a number of key players supporting the EUV ecosystem," the bank stated. These suppliers include JEOL , a Japanese electron microscope developer that has expanded into semiconductor equipment. It makes a type of technology called multi-beam mask writing equipment, which has an "incremental growth opportunity," according to Goldman. The bank is buy-rated on the stock and it is also on its conviction list. Also on Goldman's buy-rated list is HOYA , which has supplied customers such as Samsung and chipmaker TSMC since 1974. It makes a technology known as mask blanks, with around a 70% market share of EUV blanks, according to the bank. TSMC is also buy-rated and is on Goldman's conviction list — the bank said it has around 50% of all the active EUV machines installed globally. Along with TSMC, SK Hynix is also working closely with ASML, signing a five-year contract in February to buy EUV machines, Goldman said. The bank is buy-rated on the stock. Shin-Etsu , a Japanese company also making mask blanks, has "significant long-term growth potential given its technological expertise and close relationship with the world's leading semiconductor material makers," the bank said. It is buy-rated on the stock. Meanwhile, Tokyo Ohka Kogyo is a buy for Goldman for its position in the EUV supply chain, and the bank forecast a top-line compound annual growth rate of nearly 55% between 2020 and 2023. Fellow Japanese firm Tokyo Electron is set to benefit from ASML's rising machine production, given that it is a "sole supplier" of coating and developing machines for the EUV process, Goldman said, and it rated the stock a buy. Samsung is also buy-rated. "We believe being the first-mover in EUV adoption will provide an opportunity for the company to widen the cost gap with its competitors and expect the company to continue to be the market share leader in the industry," the analysts wrote.

A technologist inspects a computer chip.

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