Artificial intelligence (AI) is a popular investment trend, but there are many ways to cash in on this generational shift. Whether it's a software application, cloud computing to collect data, GPUs to power these data centers, or the companies that make the microchips, investors have a wide range of choices.
However, only one company is essentially a supplier for every company in the AI value chain: ASML (ASML 2.04%). Fortunately for investors, ASML just reported excellent news, making the AI trend seem more alive than ever.
ASML machines make cutting-edge chip technology possible
ASML makes lithography machines that etch the microscopic patterns on microchips. Its extreme ultraviolet (EUV) machines are the most powerful in the world and are used by semiconductor manufacturers like Taiwan Semiconductor to produce high-performing, energy-efficient chips as small as 3 nanometers.
ASML has created its next-generation high-NA EUV machines. These machines are slated to unlock new capabilities in a manufacturing setting, and ASML is slated to ship the first one to Intel.
This machine is huge news for ASML investors, as it shows that it's continuously innovating to keep anyone else trying to develop this technology at bay. ASML has no real competition right now, as it's the only one in the world that has produced EUV lithography machines. This gives ASML a technological monopoly -- a rare occurrence in today's competitive landscape.
Image source: ASML.
Continuous innovation also spurs chipmakers to continue buying ASML's products, as they, too, must innovate to win business. With the most powerful chips needed to efficiently crunch data to create AI models, ASML will benefit from this arms race.
ASML is quite expesnive right now
These EUV machines are massive and incredibly expensive, making ASML's results quite lumpy, as a few machines more or less sold in any given quarter versus the next can skew results. In Q4, ASML sold eight more machines than in Q3, bringing its total sales for the period to 113. In 2023, it sold 421 versus 317 in 2022. While those aren't massive production figures, the sheer cost of these machines makes up for it (its new machines are projected to cost over 270 million euros each).
In Q4, ASML generated 7.2 billion euros in revenues, which also includes income from managing its installed base and selling used machines. Its net bookings came in at 9.2 billion euros.
One notable comment from management in the conference call was that 2024's sales are expected to be the same as 2023's. This is counterintuitive since one would expect its sales to be rising due to demand in the AI field. However, management said that 2024 will be a "transition" year, and 2025 will be a year of strong growth.
So, if you're an ASML investor, you must stay patient with the company. With the stock up over 15% year to date, a fair share of investor enthusiasm has already been seen.
The stock is also quite pricey right now, trading for about 41 times earnings.
ASML PE Ratio data by YCharts.
This places ASML in high valuation territory, but it has consistently delivered even when it reached these levels.
So, am I saying to buy ASML stock today? No.
I think ASML will be a huge winner in this space, which may warrant buying some shares. However, I believe the market will eventually become impatient with ASML and sell off the stock, which is when I'll buy it. This may never occur, and I may miss a big winner in ASML, but I don't want to overextend myself by purchasing an incredibly expensive stock with so many other values in the market right now.
