ASML (ASML 2.04%) was founded nearly four decades ago, and it gradually evolved into a linchpin of the global chip market. The Dutch semiconductor equipment maker is currently the world's largest manufacturer of lithography systems, which semiconductor manufacturers use to etch circuit patterns onto silicon wafers.
It's also the world's only producer of extreme ultraviolet (EUV) lithography systems, which are required to produce the world's smallest and densest chips. It doesn't face any competitors because ASML perfected its EUV technology over the past three decades, its systems cost about $200 million each and require multiple planes to ship, and the top foundries -- including Taiwan Semiconductor Manufacturing, Samsung, and Intel -- all use its EUV systems.
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ASML shipped its first experimental EUV system in 2010. If you had invested $100,000 in ASML on the first day of that year and continuously reinvested your dividends, your investment would be worth more than $1.5 million today. But could ASML turn $100,000 into more than $1 million again over the next two decades?
The mathematical path toward another 10-bagger gain
To achieve a 10-bagger gain in 20 years, ASML would need its revenue to grow at a compound annual rate of 12% from 21.2 billion euros ($22.4 billion) in 2022 to 212 billion euros ($224 billion) in 2042. Assuming its price-to-sales ratio stays consistent throughout that period, that level of growth would turn a $100,000 investment into $1 million.
ASML's outlook supports that growth trajectory. Last November, it estimated it could generate 44 billion euros to 60 billion euros ($46.5 billion to $63.4 billion) in revenues in 2030 -- which would equal a compound annual growth rate (CAGR) of 10% to 14% from 2022.
ASML expects its growth to be driven by consistent sales of its older deep ultraviolet (DUV) systems, rising sales of EUV systems, and its upcoming rollout of next-gen high-NA EUV systems for sub-2nm process node chips. It also expects its gross margin to expand from 50.5% in 2022 to between 56% and 60% in 2030 as it maintains its pricing power.
Investors should note that ASML management often sandbags its long-term guidance. Back in 2016, it predicted it would generate 10 billion euros ($10.6 billion) in annual revenue by 2020. It cleared that target by about 4 billion euros. Management might once again be underpromising with the intention of overdelivering through the end of this decade.
It's hard to predict what will happen in the semiconductor market after 2030, but the world's top foundries will likely continue producing even smaller, denser, and more power-efficient chips to serve a broad range of industries. In other words, it's certainly possible for ASML to continue growing its sales at a CAGR of at least 12% through 2040.
Mind the near-term and long-term challenges
ASML has had a great run over the past decade, but a few major challenges could still impede its long-term growth. One major issue is China, which accounted for 14% of its sales in 2022 and remains locked in an escalating tech war with the U.S. and Europe. ASML has been barred from shipping its EUV systems to China since 2019, but a new round of tighter export curbs will prevent it from shipping its higher-end DUV systems to Chinese chipmakers next year. Those bans are also driving Chinese chipmakers to explore new ways to produce smaller chips -- and any major breakthroughs could abruptly loosen ASML's iron grip on the high-end lithography market.
Another potential threat comes from Canon (CAJ 3.72%), one of ASML's only remaining competitors in the DUV market. In mid-October, Canon launched a new "nanoimprint" semiconductor manufacturing system that can produce the equivalent of 5nm to 2nm chips without EUV technology. It accomplishes this by imprinting the circuit pattern onto the wafer like a stamp instead of optically etching it. We still don't know too much about Canon's new system, but it might be an appealing way for Chinese chipmakers to reduce their dependence on ASML.
There's also the possibility that this current era of inflation, high interest rates, and geopolitical clashes will lead to a global recession. If that happens, the semiconductor sector could suffer a much deeper slowdown than the one it endured over the past year -- in which case, it could take a much longer time for ASML to deliver a 10-bagger return.
Could ASML make you a millionaire?
Those regulatory, competitive, and macro threats could all cause ASML to miss its long-term growth targets through the end of the decade. But if you're still a young investor who can afford to buy, hold, and wait for a few decades as you profit from the secular growth of the semiconductor sector, investing in ASML might still be a great way to become a millionaire.
