Shares of semiconductor equipment leader ASML Holdings (ASML 3.84%) plummeted 16.7% this week through Thursday trading, according to data from S&P Global Market Intelligence.
ASML made news on Tuesday when it accidentally leaked its earnings report a day early, causing the big decline. But it wasn't the early nature of the leak that took the stock down, or really the reported revenue and profits. Rather, it was the bookings figure and management's forward outlook for next year that made investors reassess their views on ASML shares.
But with a monopoly on key extreme ultraviolet lithography (EUV) technology, is ASML now an opportunity?
NASDAQ: ASML
Key Data Points
Bookings were less than half of expectations
While revenue and earnings per share grew 11.2% and 9.1% respectively last quarter, it was ASML's forward-looking guidance that spooked investors. Net bookings, which mark the change to the company's extensive backlog, were just 2.6 billion euros, below expectations of 5.39 billion euros.
Additionally, management guided to only between 30 billion and 35 billion euros in 2025 revenue, which was well below the 36.3 billion euros analysts were expecting, and in the lower half of the 30 billion to 40 billion euros 2025 guidance ASML predicted back on its 2022 analyst day.
The "miss" surprised many, as the artificial intelligence (AI) revolution shows no signs of slowing down. But ASML's equipment is broad and goes into the production of all types of chips. While ASML's main customer Taiwan Semiconductor Manufacturing (TSM 3.80%) posted very strong results on Thursday and confirmed AI demand is strong, it appears the expected recovery across the rest of technology is occurring a bit slower than expected.
The more muted recovery for PCs recently caused Intel to push back the construction of its large German fab and slow the pace of its aggressive technology transitions. Meanwhile, large buyer Samsung appears to be having difficulties with its own process technology, and may therefore curtail some investments next year until it gets its house in order.
Finally, it appears Chinese customers raced to order ASML's less-advanced deep ultraviolet (DUV) lithography equipment before potential U.S. restrictions kick in. So, the surge in Chinese demand ASML saw this year should fade next year. China revenue accounted for 47% of sales last quarter, but management noted that would fall to about 20%, in line with ASML's history, in 2025.
Image source: Getty Images.
ASML could be a buy after this pullback
Shares of ASML are now down about 38% from their all-time high set this past summer. While shares don't look "cheap" at 36 times earnings, remember that ASML never really trades cheaply due to its monopoly in EUV.
Moreover, while next year's revenue guidance was disappointing, it would still mark about 16% growth over 2024 revenue guidance of 28 billion euros. And since fabs were pushed back out of next year, that likely means 2026 and/or 2027 should be relatively stronger, as long as non-AI chip markets eventually recover. This should happen, especially as interest rates come down.
Since ASML's EUV machines remain crucial to leading-edge chipmaking and memory production, now may be a good opportunity to pick up shares for the long term. As more advanced semiconductors are needed for AI and more and more chips go into our devices every year, semiconductor demand should grow long term -- and ASML's profits along with it.
