Stock splits have been in fashion in recent years in the technology sector as high-flying tech stocks have opted to go down this route in a bid to lower their share prices. Nvidia, Alphabet, Tesla, and Broadcom are some of the prominent names that have executed stock splits in recent years, believing that such a move would make their shares accessible to a wider pool of investors.
To be clear, a forward stock split (the most common type of split) doesn't alter the fundamentals and prospects of a company. This move simply increases the number of outstanding shares while reducing the price of each share. However, there is a theory that splits can lead to an increase in demand for a company's shares, which will lead to a share price increase.
This is one reason ASML (ASML +0.24%) may consider a split in 2025. Shares of the Dutch semiconductor equipment maker have underperformed the market over the past couple of years. They have gained just 22% in that span, while the broader PHLX Semiconductor Sector index has recorded tremendous gains of 94% during the same period.
The company is set to release its fourth-quarter 2024 results on Jan. 29. Will management announce a stock split on that date, and will it be a good idea to buy shares of ASML before that happens?
NASDAQ: ASML
Key Data Points
ASML's stock-split history
ASML has split its stock four times since going public in 1995. Three of them have been forward splits (the most common type of split). The company's last stock split came in 2007 when it executed an 8-for-9 reverse split to optimize its capital structure. A reverse split is the opposite of a forward split: It increases the share price while reducing the outstanding share count.
ASML's stock price has jumped more than 1,900% since its last split was announced on May 31, 2007. Each share now trades at around $764, suggesting that the time may be ripe for another stock split, which is why it won't be surprising to see management make that move when it announces its results later this month.
However, with many brokerages now allowing investors to buy fractional shares, it may be a good idea to initiate a long position in ASML irrespective of a split. Let's look at the reasons why.
The semiconductor giant's long-term prospects are strong
The stock lost steam in the second half of 2024 following a solid start last year. Worries about restrictions on sales of the company's chipmaking equipment to China, along with a slower-than-expected recovery in semiconductor markets -- other than artificial intelligence (AI) -- that led to weaker-than-expected orders for its equipment in the third quarter of 2024 have weighed on the share price.
Moreover, ASML's 2025 revenue guidance of 30 billion euros to 35 billion euros ($31.1 billion to $36.3 billion) is in the lower half of the 2025 guidance of 30 billion to 40 billion euros that the company issued at its 2022 investor day. But then, investors shouldn't forget that management believes that its long-term growth prospects remain intact thanks to catalysts such as AI.
At its 2024 investor day, held last November, management reaffirmed its 2030 revenue guidance of 44 billion euros to 60 billion euros, along with a forecast of a gross margin range of 56% to 60%. Assuming ASML manages to hit the midpoint of its 2025 guidance and achieves 32.5 billion euros in revenue this year, the company's top line could have a compound annual growth rate (CAGR) of almost 10% over the next five years based on the midpoint of its 2030 guidance.
And its 2030 gross margin guidance points toward a nice jump from its 2025 guidance range of 51% to 53%, suggesting that the company's bottom line could increase at a healthier pace. Management added that AI is going to play a central role in helping it achieve its long-term targets.
More specifically, ASML believes that the demand for its extreme ultraviolet (EUV) lithography systems -- which manufacture advanced chips -- should remain robust between 2025 and 2030, with chipmakers expected to increase their spending on this equipment at a double-digit CAGR during this period. That would come as no surprise considering that its lithography systems are used for manufacturing advanced chips that are deployed for tackling AI workloads.
According to an estimate by forecasting firm Research and Markets, the EUV lithography market could generate annual revenue of $22.7 billion in 2029 as compared to an estimated $12.2 billion last year. ASML holds a near-monopoly in this market, suggesting that the incremental revenue opportunity in EUV lithography could help drive robust double-digit revenue growth, which could translate into higher bottom-line increases.
Analysts predict a significant jump of 26% in earnings per share (EPS) in 2025 following an estimated drop of 4% in 2024.
ASML EPS estimates for current fiscal year, data by YCharts.
As the chart above shows, ASML is forecast to maintain 25% or more earnings growth in 2026 as well. Given that the stock trades at 31 times forward earnings, it may be a good time to buy it right now irrespective of a stock split since that is a small discount to the Nasdaq-100 index's earnings multiple of 32 (using the index as a proxy for tech stocks).
