ASML Holding (ASML -3.07%) has been among the semiconductor sector companies enjoying rising sales thanks to the surge in artificial intelligence (AI) spending. But its stock has been on the decline, and shares dropped again Wednesday morning.

ASML last reported quarterly earnings on July 17, and the stock is down by nearly 25% since then. That includes a 3.9% decline as of 11:55 a.m. ET Wednesday. That latest drop came after a Wall Street analyst who was previously bullish on the stock publicly changed his stance.

ASML sales growth faces headwinds

ASML supplies the semiconductor sector with the lithography machines it needs to manufacture computer chips — and it’s the only maker of the extreme ultraviolet (EUV) lithography machines necessary to produce the most advanced chips, which are flying off the shelves as the demand for computing power for AI training and other needs surges. Over the last year, ASML’s stock price rose as its revenue jumped by almost 25% since the start of 2023 on a trailing-12-month basis.

But in a new research note, UBS analyst Francois-Xavier Bouvignies downgraded his recommendation for ASML from buy to neutral (hold), and wrote that he thinks shares won’t move as high as he previously expected.

While Bouvignies still sees some near-term potential upside from ASML’s strong order book, he believes that the current situation may be a short-term peak for the business. The analyst believes the consensus outlooks for earnings over the next one to two years are too high, and asserts that now is not the time to be a buyer of ASML’s stock.

Image source: ASML Holding.

ASML’s lithography systems may be vital hardware for semiconductor makers that are boosting output. But many customers may now have the production capacity that they need, which could mean a coming drop in new orders. The future of the Chinese market is also a big question for ASML and others in the industry.

Bouvignies expects that Chinese spending on chipmaking equipment will drop meaningfully in both 2025 and 2026. Additionally, the Chinese government has already threatened to cut off ASML in response to new U.S. and Dutch restrictions on tech exports to China.

Investors are likely to see more volatility in the chip sector and for ASML shares specifically. But investors can still typically ignore short-term noise when it comes to long-term holdings.