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Investing.com -- Morgan Stanley (NYSE:MS) has revised its outlook on VAT Group (SIX:VACN), upgrading its rating to “equal-weight” from “underweight,” in a note dated Friday.
The reassessment comes as analysts observe early signs of improvement in the pricing environment within the Memory segment, a key market for VAT
Morgan Stanley’s new stance on VAT Group reflects a more neutral position after previously holding a bearish view on the stock due to pressures in the semiconductor equipment industry.
“We downgraded VAT in September ’24 as we felt the stock offered the best way to express our increasingly bearish view on Memory within European Semicap. With that having largely played out and our view on the memory space improving, we believe it makes sense to neutralize our Underweight,” the analysts said.
The brokerage noted that while VAT still faces headwinds, including uncertainty in global foundry demand and ongoing challenges in the NAND segment, recent stabilization in DRAM pricing and a relative shift toward leading-edge technology exposure have prompted the adjustment.
Despite the rating shift, VAT’s financial outlook remains cautious. The company’s price target has been adjusted slightly upward to CHF 315 from CHF 300.
Analysts believe that while Memory conditions are showing initial signs of a rebound, growth visibility beyond the near term remains unclear.
“The near-term pricing trend is undoubtedly better in the Memory market, with spot price increases for both DRAM and NAND starting from March,” Morgan Stanley added.
The broader semiconductor equipment market continues to experience mixed conditions, with overall wafer fabrication equipment (WFE) spending projected to decline by 3% in 2025 before recovering by 4% in 2026.
VAT’s exposure to the recovering segments of Memory and advanced foundry investments provides some relief, but it is not enough to justify a more bullish stance from Morgan Stanley.
VAT’s recent earnings report pointed to revenue expectations of CHF 1.1 billion for 2025, reflecting a nearly 20% growth rate.
However, analysts caution that this figure depends on continued momentum in Memory investments and improvements in NAND-related demand, both of which remain volatile.
EBITDA margins are projected at 31.9% for 2025, climbing to 34.2% in 2026. “We are broadly in-line with consensus for FY25 but see risks towards 2H25 and beyond,” the analysts said.
Morgan Stanley remains skeptical of VAT’s ability to sustain higher-than-market growth rates.
The brokerage’s estimates for VAT’s revenue in 2026 are roughly 6% below consensus, reflecting concerns over potential softness in key markets beyond the first half of the year.
Given these factors, VAT’s rating has been brought in line with the broader industry outlook rather than positioned as a standout performer within the sector.
Morgan Stanley’s analysts noted that VAT’s previous Underweight rating had been based on its disproportionate exposure to the Memory downturn, which had driven weak performance over the past year.
With signs of recovery emerging, the firm now sees fewer reasons to hold a bearish view but remains cautious given the unpredictable nature of the semiconductor cycle.
“We see Memory pricing as having seen a near-term bottom, while our slightly increased price target moves us within 10% of the last close,” the analysts said
While an equal-weight rating acknowledges VAT’s improving conditions, it stops short of signaling strong confidence in sustained growth.