Rising 41% over the last year, ultraviolet lithography manufacturer ASML's (ASML 2.18%) stock has continued an incredible run, with its stock price up more than tenfold since 2014.
NASDAQ: ASML
Key Data Points
Using ultraviolet light to etch nanoscopic patterns onto silicon wafers for use in semiconductor chips, ASML has mastered the intricate lithography process. This mastery enables the company to hold a two-thirds market share of the more mature deep ultraviolet (DUV) lithography niche and a monopoly on the bleeding-edge extreme ultraviolet (EUV) lithography industry.
It's this market dominance and unmatched technology that will help ASML stock move even higher, according to Wells Fargo analyst Joseph Quatrochi, and continue the company's incredible recent run. Boosting his price target on ASML to $1,150, Quatrochi suggests the stock has more than 20% upside over the next 12 months or so.
Secretly powering the "Magnificent Seven"
I can't help but agree with Quatrochi's optimistic outlook. Taiwan Semiconductor Manufacturing is ASML's largest customer and it supplies the machines that are integral to TSMC's semiconductor chip production. That connection means ASML indirectly powers the "Magnificent Seven." The Magnificent Seven stocks' respective cloud platforms, data centers, and artificial intelligence (AI) ambitions would not be nearly as effective without ASML's lithography.
This crucial player in the semiconductor supply chain saw sales of its lithography systems rise over 250% since 2014. This robust demand allows ASML to maintain immense pricing power, leading to a healthy 28% net profit margin. With these profits, the company has reduced its share count by 1% annually over the last decade while its dividend payments spiked sevenfold, further juicing returns for shareholders.
With its stock trading at 45 times earnings (P/E ratio), ASML is nearly double the valuation of the S&P 500 index. The price tag is high but worth it thanks to its niche dominance, its pricing power, and its importance to the AI industry. It's an industry expected to grow by 16% annually through 2030, according to Statista. The analyst is spot on and ASML is worth buying, even if it's best purchased by dollar-cost averaging.
