ASML’s unfavorable leaked results and guidance caused a negative impact on the semiconductor sector. The question arises whether this news signals a downcycle or presents an opportunity.
Shares of Micron, Applied Materials, and KLA Corporation all saw significant declines on Tuesday, dropping by 4.3%, 10.9%, and 15.5%, respectively, by 3:28 p.m. ET. This widespread downturn in semiconductor stocks followed an accidental leak of ASML Holdings’ third-quarter results and future outlook, initially scheduled for release the next day.
The results and guidance from ASML were considerably disappointing, instilling concern throughout the sector.
ASML’s recovery appeared slower than anticipated. The leaked press release revealed 11.2% revenue growth and 9.1% EPS growth, with revenue surpassing the previous quarter’s guidance. However, the bookings figure and 2025 outlook were concerning. Net bookings amounted to 2.6 billion euros (approximately $2.8 billion), falling significantly short of the expected 5.39 billion euros (approximately $5.87 billion). Furthermore, preliminary revenue guidance for 2025 ranged between 30 billion and 35 billion euros (approximately $33 billion to $38 billion), lower than analysts’ expectations of 36.3 billion euros (approximately $39.5 billion).
ASML’s management commented on the recovery’s pace, noting continued strong developments in AI but slower recovery in other market segments leading to customer caution. This likely references Intel, experiencing lower near-term demand, and Samsung, dealing with operational issues and delaying fab expansions. Additionally, DRAM memory suppliers are limiting capacity additions and redirecting non-AI memory equipment to produce HBM and DDR-5 for AI.
The interconnectivity of the semiconductor capital equipment sector means that delays in large fab projects not only affect ASML but also impact companies like Applied Materials and KLA Corporation, which provide essential equipment. Consequently, these companies also experienced similar stock sell-offs in response to ASML’s reveal.
Micron’s stock faced declines as ASML reported weaker end-demand in non-AI markets but seemed to fare better than others. The pullback in memory capacity investments by Micron’s competitors might be beneficial, considering memory pricing’s sensitivity to supply and demand dynamics.
The sell-off could present an opportunity for chip investors. A recovery in non-AI markets remains likely, albeit slower than some anticipated. ASML’s guidance midpoint still projects 16% growth the following year, with delayed fab buildouts possibly sustaining growth beyond 2025.
Corporate budgets for 2024 might prioritize expensive AI spending, affecting non-AI server and PC upgrades. Nevertheless, aging equipment will eventually require updates, especially with the phasing out of Windows 10 support in October 2025. The introduction of AI-enabled devices may also boost chip content across PCs, smartphones, and auto markets that currently lag.
Investors with a long-term perspective might view this sector sell-off as a chance to invest in high-quality semiconductor stocks for the future.
Billy Duberstein and/or his clients have positions in ASML, Applied Materials, Intel, KLA, and Micron Technology. The Motley Fool holds positions in and recommends ASML and Applied Materials. The Motley Fool advises Intel and has a specific option strategy involving short November 2024 $24 calls on Intel. The Motley Fool has stated its disclosure policy.
