Shares of ASML Holdings, a leader in semiconductor equipment, experienced a decline of 16.7% this week through Thursday, according to data from S&P Global Market Intelligence. The drop followed an accidental early release of the company’s earnings report, although the decline was not directly due to the timing of the release or the reported revenue and profits. Instead, investors were concerned with the bookings figure and management’s outlook for the upcoming year, leading to a reassessment of ASML shares. Despite this, ASML’s unique position with its monopoly on extreme ultraviolet lithography technology raises the question of whether this is a buying opportunity.
In the recent quarter, ASML reported growth in revenue and earnings per share by 11.2% and 9.1%, respectively. However, the company’s guidance for the future affected investor confidence. Net bookings were recorded at 2.6 billion euros, significantly lower than the anticipated 5.39 billion euros. Furthermore, management projected revenue for 2025 to be between 30 billion and 35 billion euros, falling short of the 36.3 billion euros analysts had expected.
The surprising miss comes despite the ongoing demand for chips driven by artificial intelligence advancements. While Taiwan Semiconductor Manufacturing, ASML’s chief customer, posted strong results and confirmed robust AI demand, the broader technology sector’s recovery appears to be slower than anticipated.
Consequently, Intel has delayed the construction of its German fabrication facility and adjusted its technology transition plans. Meanwhile, Samsung faces challenges with its process technology, which might lead to reduced investments in the coming year. Additionally, Chinese customers have reportedly accelerated their orders of ASML’s deep ultraviolet lithography equipment ahead of potential U.S. restrictions. As a result, ASML expects a decrease in revenue from China, which accounted for 47% of sales last quarter, reverting to about 20% by 2025.
ASML shares have now fallen about 38% from their peak earlier this summer. While the current price-to-earnings ratio of 36 is not considered “cheap,” ASML typically garners higher valuations due to its EUV monopoly. Despite the lower revenue guidance for next year, the expected growth over 2024 is approximately 16%, and future prospects for 2026 or 2027 could be stronger, contingent on the recovery of non-AI chip markets as interest rates reduce.
Given ASML’s critical EUV technology in advanced chipmaking, the current pullback might present a strategic opportunity for long-term investment. As the demand for advanced semiconductors grows, driven by increased AI needs and the integration of more chips in everyday devices, the long-term outlook for semiconductor demand and ASML’s profitability appears favorable.
