Shares of ASML Holding (ASML -1.51%) slumped last week following the release of the company's first-quarter 2023 results. Investors apparently chose to overlook the Dutch semiconductor giant's outstanding year-over-year growth and solid full-year guidance and focus on the near-term weakness in the chip industry.

But ASML's pullback is an opportunity for savvy investors to buy the stock. The semiconductor equipment company is on track to deliver terrific growth this year despite headwinds in the semiconductor space, which also explains why analysts are expecting the stock to zoom higher over the next year.

The $792.50 median price target among six analysts covering ASML is a 26% jump from the current price. The top price target of $850 would be a 35% increase. Let's look at the reasons to believe this semiconductor stock can deliver a healthy upside over the next year.

The company's backlog is reassuring

Global semiconductor industry revenue is expected to drop 4% in 2023 to $557 billion, according to World Semiconductor Trade Statistics. Market research firm Gartner is predicting a similar decline, suggesting that worldwide semiconductor revenue is on track to drop for the first time since 2019.

This explains why spending on wafer fabrication equipment is anticipated to drop a whopping 22% this year following last year's 8% increase. Not surprisingly, ASML CEO Peter Wennink adopted a cautious tone when the company released its latest results, saying that "we continue to see mixed signals on demand from the different end-market segments as the industry works to bring inventory to more healthy levels." 

The end-market weakness can be seen in a sharp decline in ASML's bookings last quarter. The company received net bookings, which refers to system sales orders for which it has accepted written authorizations, worth 3.75 billion euros. That was a substantial decline from bookings worth 6.3 billion euros in the fourth quarter of 2022. Still, ASML has reiterated its full-year guidance and guided above Wall Street's expectations for the current quarter.

The company expects Q2 revenue of 6.75 billion euros along with a gross margin of 50.5% at the midpoint of its guidance range. The top-line forecast points toward an impressive 25% year-over-year jump. While that's not as impressive as the 90% year-over-year pop ASML reported in Q1, it is still solid considering the semiconductor industry scenario. What's more, ASML is sticking to its full-year revenue growth forecast of 25%.

The solid growth numbers that ASML is putting up in a tepid semiconductor environment aren't surprising as the company is well placed to weather any short-term downturn thanks to its massive order backlog. The company was sitting on a backlog worth 39 billion euros at the end of the first quarter. While that was slightly down from the backlog of 40.4 billion euros that ASML had at the end of 2022, the figure is still healthy enough to help the company achieve its revenue growth target of 26.5 billion euros this year.

Also, the top line is expected to head higher at a nice pace in the following years.

ASML Revenue Estimates for Current Fiscal Year Chart

ASML Revenue Estimates for Current Fiscal Year data by YCharts

Investors should focus on the bigger picture

The semiconductor industry's slump isn't going to last forever. Spending on semiconductor fabrication equipment is expected to jump 21% in 2024 following this year's steep decline, according to industry association SEMI.

Also, semiconductor industry players such as Taiwan Semiconductor Manufacturing believe that the market for chips could hit bottom in the second quarter and then gradually recover in the second half of 2023. This explains why TSMC isn't cutting its capital spending forecast for 2023 despite a near-term slowdown, with management pointing out that its capital expenditure is "based on the long-term market demand profile."

Moreover, the need for chips based on smaller manufacturing nodes to power fast-growing applications such as generative artificial intelligence (AI) -- which has created a massive market for chipmakers -- tells us just why TSMC isn't going to take its foot off the pedal. This bodes well for ASML, whose machines allow chipmakers and foundries to shrink the size of chips so that they can perform faster and more efficiently to tackle AI workloads.

All this indicates that ASML investors shouldn't miss the forest for the trees as the company is built for long-term growth. This also explains why analysts are forecasting annual earnings growth of almost 30% from ASML. With the semiconductor stock now trading at 33 times earnings as compared to its five-year average earnings multiple of 41, now seems like a good time to buy ASML considering the potential upside on offer.