What happened
Shares of ASML Holding (ASML 0.03%) popped 31.6% through the first six months of 2023, according to data provided by S&P Global Market Intelligence. The leading maker of advanced lithography equipment for semiconductor manufacturers is seeing a boost due to the booming demand for artificial intelligence (AI) products like ChatGPT, which require intense amounts of computing power to run. There have also been numerous announcements from chipmakers announcing spending on factories in the United States.
So what
AI services like ChatGPT require intense amounts of computing power to run properly, typically from chips supplied by Nvidia. This has boosted the shares of anything related to the semiconductor supply chain.
With its extreme ultraviolet lithography equipment, ASML is a key component in the making of advanced chips. It is the only company to make these machines in the world, which allows semiconductor manufacturers to make advanced AI chips for Nvidia. One could even go as far as saying, without ASML, there would be no AI boom.
In the first quarter of 2023, ASML's revenue grew by just 5% year over year to 6.7 billion euros. Bookings, a key indicator of future demand, fell from 6.3 billion euros to 3.75 billion euros in the period.
These results might not look strong at first glance, but remember that this has reflected none of the future demand for AI products, which will take a few quarters to flow through the supply chain and reach ASML's order book. There has also been a bullwhip effect coming out of the pandemic, where in 2022, there was a giant one-time boost in orders for semiconductor equipment that ASML is now lapping. Over the next few quarters, investors should be tracking ASML's bookings closely.
On top of the narrative around AI, there have been some more material announcements from manufacturers that could hint at strong growth from ASML this decade. Since 2020, there have been over $200 billion in commitments for new semiconductor factory build-outs in the United States from companies like Intel. A lot of these dollars will go to buying equipment from companies like ASML. The restoration of the semiconductor supply chain to the United States could mean a boon for equipment companies this decade.
Now what
AI aside, ASML is a strong business, with a monopoly on advanced lithography equipment. Even the Chinese government -- which has a virtually limitless ability to spend money -- has not been able to replicate the technology. This gives ASML a competitive advantage that should last for decades. This company should be a key component to the semiconductor industry for the foreseeable future.