ASML Holding (ASML 2.04%) might have to stop calling itself the "most important tech company you've never heard of." As more investors become aware of the crucial role ASML plays in the chip industry, they continue to bid shares higher.

Consequently, stock of the Netherlands-based semiconductor company trades near all-time highs, and its value proposition makes the increases less likely to reverse course. Hence, the more pressing question is whether investors are too late to capitalize on ASML's growth story.

The importance of ASML

Most semiconductor investors know Taiwan Semiconductor (TMSC) and its importance in the chip industry. However, TSMC is a key customer of ASML, since its lead in manufacturing depends on the latter's extreme ultraviolet lithography (EUV) machines. Peers such as Lam Research and Applied Materials have not matched ASML's technical lead in this area, so it has that market to itself.

That is crucial as chip manufacturers scramble to make the most advanced chips for artificial intelligence (AI) and other applications.

And governments in North America and Europe have become alarmed at the concentration of manufacturing in Taiwan. To this end, they have approved tens of billions of dollars in subsidies so companies such as Intel, Samsung, and even TSMC can diversify their manufacturing bases away from Taiwan. That further stokes the demand for EUV machines.

This should be particularly lucrative to ASML investors, if only from the standpoint of AI chips. According to Allied Market Research, the AI chip market is expected to rise at a compound annual rate of 38% through 2032. That means the AI chip market, which it valued at $15 billion in 2022, would reach $384 billion by that year if the forecast holds!

ASML from an investor standpoint

Not surprisingly, the high demand bolstered ASML stock. It is up 52% over the last year and approximately 440% over the previous five years.

As a result, valuations have risen with the growth, though not as much as some might fear. Its current price-to-earnings (P/E) ratio is around 45. This is not inexpensive for ASML by any measure, but it is below the multiples it reached during the 2021 bull market.

Given the market opportunity and the financials, that valuation might not deter investors. In 2023, net sales reached nearly 28 billion euros ($30 billion), a 30% increase from year-ago levels.

The cost of sales and operating expenses rose nearly as fast, but the higher revenue worked in ASML's favor. Thus, net income of $8.5 billion rose 39% over the same period.

Admittedly, ASML is not immune from the challenges of the chip industry. The company labeled 2024 a "transition year," saying revenue will be similar to 2023 with U.S. and Dutch restrictions on selling its most advanced units to China. But rising demand, particularly in the AI space, bodes well over the long term.

Consider ASML

ASML's valuation indicates it is not too late to buy the stock. Indeed, it's not a low-cost stock at current levels, and the flat revenue growth expected in 2024 might make its earnings multiple less appealing.

Nonetheless, the need for AI chips will likely grow massively over the next few years. That demand -- and the urgency to move more capacity away from Taiwan -- make ASML essential to the chip industry and its growth. Thus, investors are right to bid ASML's stock price higher, and it should continue to rise as the company works to meet demand for its EUV machines.