ASML Holding (ASML +1.91%) stock fell sharply after the company released its first-quarter 2024 results on April 16, dropping 7% in a single session as the semiconductor giant's outlook was clouded by the ongoing tariff-related turmoil.
The Dutch company, which makes semiconductor manufacturing equipment used by leading chipmakers and foundries around the globe, delivered stronger-than-expected quarterly results that were ahead of Wall Street's expectations. However, ASML's revenue guidance for the current quarter fell short of expectations, though the good news is that the company hasn't changed its full-year guidance despite the uncertainty.
Let's take a closer look at ASML's latest results and check whether the stock's steep drop could be a buying opportunity.
NASDAQ: ASML
Key Data Points
ASML expects growth ahead despite the tariff uncertainty
ASML's first-quarter revenue landed at 7.74 billion euros, a jump of 46% from the year-ago period. The company's net income nearly doubled on a year-over-year basis. ASML expects its second-quarter revenue to land at 7.45 billion euros at the midpoint of its guidance range. That missed the consensus estimate of 7.73 billion euros by a whisker.
The good part is that ASML's guidance points toward a 19% jump in its top line from the year-ago period, which is healthy considering the ongoing turmoil. But then, investors are concerned about the effect of tariffs on ASML's order book. The company received just under 4 billion euros' worth of net bookings in Q1, down from 7 billion euros in the fourth quarter of 2024. The bookings figure missed the consensus estimate by almost a billion euros.
However, investors should note that ASML's net bookings increased by almost 10% year over year. Moreover, ASML's bookings tend to vary in volume from one quarter to another. For instance, its bookings in Q4 2024 were double what analysts were expecting. So, it may be difficult to gauge ASML's prospects based on the bookings it receives every quarter, but the fact that this figure increased on a year-over-year basis in Q1 suggests that the demand for its chipmaking equipment remains solid.
CEO Christophe Fouquet is confident that ASML's business is on track for growth in 2025 and 2026. He remarked on the latest earnings conference call:
Looking longer term, the semiconductor market remains strong with Artificial Intelligence creating growth in recent quarters and we see some of the future demand for AI solidifying which is encouraging. Our conversations so far with our customers confirm our expectation that both 2025 and 2026 will be growth years.
Of course, ASML does accept that there is "an increased uncertainty across the global economy due to the on-going discussion on tariffs." But the latest results of one of its key customers indicate that the semiconductor equipment market could continue to remain in good health. Taiwan Semiconductor Manufacturing, popularly known as TSMC, reported solid Q1 results on April 17. The company, which fabricates chips for well-known consumer electronics companies and artificial intelligence (AI)-focused chipmakers, pointed out that it hasn't witnessed any alteration in its customers' behavior thus far.
What's more, TSMC has reiterated its 2025 capital expenditure forecast of $38 billion to $42 billion. That would be a 33% jump from last year at the midpoint. This is good news for ASML, as TSMC is one of its most important customers, since the latter is the world's largest foundry. Meanwhile, semiconductor industry association SEMI expects global fabrication equipment spending to increase by 2% this year, followed by a stronger jump of 18% in 2026.
Recent tariff-related developments, such as the exemption of duties on imports of semiconductors, computers, and chips, along with the 90-day pause on "reciprocal" tariffs to ensure that there is time for negotiations, suggest that the Trump administration is willing to be flexible. If the negotiations turn out to be favorable, then the cloud of uncertainty that has weighed on fast-growing companies such as ASML could go away.
The stock's valuation is very attractive right now
ASML's post-earnings drop has made the stock even more attractive. It is trading at 25 times trailing earnings, which is a discount to the tech-heavy Nasdaq-100 index's earnings multiple of 28. Considering that the company has reiterated its full-year guidance and points out that catalysts such as AI could help drive long-term growth for its semiconductor equipment, it's easy to see why analysts are expecting its bottom-line growth to remain healthy going forward.
ASML EPS Estimates for Current Fiscal Year data by YCharts.
So, investors who are sitting on extra cash after saving enough for bad times, clearing their bills, and closing high-interest loans could consider buying this semiconductor stock, thanks to its cheap valuation and healthy long-term growth potential.
