Morgan Stanley expects the European semiconductor Q4 earnings season to focus on capital spending visibility and order momentum. The bank favors wafer fabrication equipment (WFE) names, highlighting ASML and ASMI as top picks. These firms are positioned to benefit from continued strength in memory and foundry investment, with results starting on January 28.

The analysts cite a widening supply-demand gap for memory makers as a key driver for DRAM-linked orders, expecting momentum to persist into 2027. Confidence in foundry spending is also high, supported by recent guidance from TSMC, which bolsters the outlook for leading-edge foundry strength and WFE order books.

Morgan Stanley raised its price targets for both ASML to €1,400 and ASMI to €825. The bank also noted a less cautious tone on China sales for ASML, expecting double-digit sales growth commentary. For analog chips, it prefers STMicroelectronics over others, while cutting its target for Infineon but keeping an Overweight rating.