ASML Holdings N.V. (NASDAQ: ASML)
ASML Holding is one of the global leaders when it comes to semiconductor manufacturing equipment, and it's set to benefit from soaring chip demand over the long term despite recent setbacks for the industry. The company is also the sole producer of extreme ultraviolet (EUV) lithography systems, which are required to manufacture a specific kind of semiconductors. Having released very promising guidance for the next decade, ASML has caught the eye of investors resulting in an increase in mentions by 184% over the last day, encouraging investors to wonder what gives the company such hype. Currently, shares of ASML trade at $585.59 USD.
Positive Hype
ASML is a company that has almost always done well, featuring high growth and providing solid returns, here are some of the reasons you might want to consider taking a position in the company now.
ASML reported Q3 revenue of 5.78 billion euros, up 10% over the prior-year period. Analysts would have settled for 5.3 billion euros in revenue from ASML, but the company's efforts to speed up the installation of its machines at customer sites helped it recognize more revenue than anticipated.
Between 2018 and 2021, ASML's revenue rose at a compound annual growth rate (CAGR) of nearly 20%, while its EPS increased at a CAGR of 33%.
An expansion of its annual capacity In 2021, ASML sold 42 EUV systems, which cost $150 million to $200 million each and require multiple planes to ship.
Its gross margin would also expand significantly from 52.7% in 2021, which isn't that surprising since it has unmatched pricing power in the EUV market.
It anticipates revenue between 6.1 billion and 6.6 billion euros in the current quarter. That points toward a nice increase of 27% over the prior-year period's revenue of 5 billion euros at the midpoint of ASML's revenue guidance range.
ASML is shrugging off concerns about China ASML generated 15% of its system sales in China last year.
ASML has a new share buyback plan On top of all that rosy guidance, ASML announced a new share buyback plan of up to 12 billion euros ($12.4 billion), which will last through the end of 2025.
The market's demand for ASML's EUV systems is still outstripping its supply even as the semiconductor market cools off. That's because TSMC, Samsung, and Intel still need to continuously invest in smaller and denser chips to avoid falling behind the tech curve.
ASML plans to increase its annual capacity to 90 EUVs and 600 DUVs (compared to 267 units in 2021) by 2025-2026. It also expects to kick off its shipments of next-gen "high-NA" EUV systems, which will enable its customers to produce even smaller chips, in 2023, and to ramp up its annual production capacity to 20 systems by 2027-2028.
ASML offered a big guidance boost for 2025 and beyond. During ASML's previous investor day last September, the company said it would generate 24 billion to 30 billion euros ($24.9 billion to $31 billion) in revenue in 2025, with a gross margin of 54% to 56%.
It also predicted that its annual revenue would reach 44 billion euros to 60 billion euros by 2030 with a gross margin of 56% to 60%. The midpoint of that guidance implies ASML's annual revenue could reach a compound annual growth rate (CAGR) of 12% from 2021 to 2030.
Negative Hype
Although there are lots of very good reasons to be picking ASML up now, no investment is perfect and here are some of the reasons ASML might not be.
Persistent concerns regarding the deceleration of sales in the PC, smartphone, and cloud markets all caused ASML's stock to decline more than 30% from its all-time high of $870.85 a share last September.
ASML was hamstrung by component shortages that kept the company from recognizing revenue. It has been shipping incomplete machines to customer sites in a bid to speed up deliveries, but it cannot recognize revenue from such shipments until and unless the machines are tested at the sites and formally accepted by the customers.
Conclusion
ASML's top and bottom lines exceeded expectations as the demand for its semiconductor manufacturing equipment remained healthy. But what caught investors' attention was ASML's solid guidance and management's assurance that the U.S. government's restrictions on sales of chips to China will only have a limited impact on the company's 2023 revenue. With solid financials, optimistic predictions for both the company and the semiconductor industry as a whole and the recent fall in value, ASML seems like a great investment. However, there are still concerns over the immediate economic conditions that might cause the company to underperform expectations in the near future. However, this is short term and the future is hopeful.
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