Share buybacks, capacity expansion, takeover plans and semiconductor trading skirmishes all play a part in the recent uptrend in the Netherlands-based chip equipment maker ASML (NASDAQ: ASML).

Shares are up 17.82% last week and 52.41% last month and are currently trading 24% above their 50-day moving average.

The upward trend started in October, shortly after ASML’s better-than-expected third-quarter results. Following that report, several analysts upgraded the stock or raised their price targets, as you can see from MarketBeat analyst data.

The consensus price target is now $797.29, a potential upside of 38.25%. Positive news was cited as a catalyst for raising the price target. The analyst consensus score on the stock is “buy,” but that shouldn’t be taken as a recommendation. It is always important to evaluate each stock within the parameters of your risk tolerance, existing holdings and financial objectives.

That said, ASML shows unusual strength. Other major gear manufacturers such as Applied Materials (NASDAQ: AMAT) and Lamb Research (NASDAQ: LRCX) also rose recently, but trended down over the past week, while ASML maintained its gains.

Rally’s pace picked up

ASML’s rally picked up steam on November 10, when the stock rose 14.57%, more than double its average turnover. The company held an investor day where it announced several initiatives and updates, including:

• Despite an uncertain macroeconomic environment, the company expects demand and capacity to show healthy growth over the longer term.
• It expects industry developments and innovation to drive growth in the semiconductor markets.
• The company plans to increase its capacity to meet future demand.

CEO Peter Wennink said that even excluding sales in China would not affect the company’s growth forecasts. His comments centered on concerns over US restrictions on chip manufacturing equipment to China.

ASML also initiated a new share repurchase program worth approximately $12.2 billion, which will run through December 2025.

ASML is part of the chip equipment industry. It produces extreme ultraviolet lithography systems, which it sells to semiconductor manufacturers. It has carved out a niche in that category, giving it a dominant place in the wider semiconductor business.

The company’s sales and profits fell in 2022, as chipmakers scrapped capital spending plans. For the full year, Wall Street expects net income of $14.14 per share, down 13%. However, that rises 34% next year to $18.92 per share.

Ahead of views

MarketBeat earnings data for ASML show that the company has outperformed earnings estimates in each of the past eight quarters.

The recent price action has been encouraging, although the stock has underperformed the broad market over the past 12 months. A weekly chart provides the clearest indication of the company’s long downtrend and where it currently trades, relative to late 2021 highs.

Shares fell to a two-and-a-half-year low in October, shortly before the earnings announcement set the stage for another rally. The stock has ticked higher and is now back at May 2022 levels.

ASML has characteristics of a growth stock, even in the current down market. For example, the price-to-earnings ratio is 39, which can be considered high.

True, it has a lot to make up for before retaking its high of $895.93 in September 2021, but with this month’s price action, stocks made up for a shorter-term consolidation that began in August. ASML is now trading above several key moving averages. A potentially encouraging sign is that short-term averages are moving higher as the longer-term 200-day line moves lower.

That is a positive trend and the stock may be heading for a bullish crossover in the coming sessions as the 50-day line moves above the 200-day mark. That could be an indication that the current uptrend has enough momentum to lift the stock even higher, as analysts expect.