ASML - ASML: Poised For Growth As The Semiconductor Industry Bounces Back

2024-06-13 12:14:28 ET

Summary

• ASML Holding N.V. stock returns have been lackluster over the last two years due to declining revenue growth in the semiconductor industry.
• Its lithography machines are valuable for chip manufacturing; it has a monopoly on EUV lithography technology.
• Despite the risks, the company is a buy for its potential upside in a forecasted semiconductor industry rebound in 2025.

ASML Holding N.V.'s ( ASML ) stock has struggled between 2022 and 2024 as the semiconductor industry entered a cyclical downturn. The following chart from Omdia shows that annual semiconductor industry revenue growth peaked in 2021 and declined to 9% year-over-year in 2023.

Last year, the semiconductor industry was in a chip supply glut, which hurt many of its customers and slowed ASML's sales growth. Although some experts believe the chip industry will begin to bounce back in 2024, some of the adverse effects of the downturn have lingered into the first half of this year. When the company reported first-quarter 2024 earnings in April, year-over-year revenue growth was down 21% year-over-year and had missed analysts' estimates by 1.6%. Management also made some comments during its first quarter 2024 earnings call that implied that 2024 was a transition year and during the first half of the year, sales of its chipmaking lithography machines may be weak. However, sales should be much stronger in the second half of the year. Investors have already anticipated a chip industry and ASML rebound, with both the company and the iShares Semiconductor ETF ( SOXX ) beating the returns of the S&P 500 Index ( SPX ) year to date. This semiconductor equipment's stock also rose approximately 10% on June 5, when the news hit the market that it would begin shipping its latest lithography machines to Taiwan Semiconductor Manufacturing Company Limited ( TSM ) and Samsung Electronics later in 2024....

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