This week’s remarkable surge by ASML Holding NV illustrates the firm grip of the artificial intelligence trend on the chip equipment manufacturer. With recent earnings signaling a strong resurgence in demand for its cutting-edge machines, which serve as a crucial indicator for the semiconductor sector, Europe’s leading tech company is poised to mark its most successful week in over two years.
Unexpectedly swift returns have been witnessed, attributed to the burgeoning demand in the large bandwidth memory sector, as highlighted by Oddo BHF researcher Stephane Houri, underscoring the pivotal role of AI driving these developments within ASML’s financial data.
The third quarter saw ASML’s orders reaching an all-time high, predominantly fueled by increased spending commitments from memory chip producers. The rebound in the smartphone and computer markets, reliant on chips for data storage, further bolstered this growth trajectory.
ASML’s CEO Peter Wennink emphasized that the quest for high-performance memory chips acts as a critical impediment to unlocking the full potential of AI. Consequently, chip manufacturers are urged to invest in extreme ultraviolet (EUV) lithography systems, a cornerstone of contemporary chip fabrication provided by ASML. Typically, the delivery timeline for premier EUV systems spans between 12 to 18 months.
Societe Generale analyst Alexander Peterc noted the unanticipated surge in demand, attributing it to the escalating need for AI technologies. The market demand for professional cards capable of processing vast data volumes to support AI systems has been a driving force. Nvidia Corp., leveraging ASML’s machinery for its product manufacturing, has notably dominated this landscape, with its investments tripling in 2023 and continuing to soar thereafter.
While ASML faced challenges with reduced orders from key clients like Taiwan Semiconductor Manufacturing Co. through most of 2023, the resurgence in orders is fueled by the race among major chipmakers to develop 2-millimeter chips, the next-gen systems enhancing AI algorithm processing speed. Moreover, upcoming chip production facilities such as the TSMC hospital in Arizona, Intel Corp. factory in Ohio, and Samsung Electronics Co. plant in Texas are set to commence operations next year, necessitating ASML’s equipment.
Despite ASML’s stocks appearing relatively expensive from a one-year perspective, trading at 40 times the projected income for the upcoming year, the outlook brightens when considering the anticipated “very important” growth in 2025. This growth projection aligns ASML favorably against other significant AI facilitators, as highlighted by Gerrit Smit, the manager of Stonehage Fleming’s $2.5 billion Global Best Ideas Equity Fund.
Concerns linger regarding ASML’s sales to China, as chipmakers rushed to import printing tools ahead of export restrictions last month, potentially impacting sales to the nation in the current year. The year 2024 is anticipated to be a transitional period for ASML, with uncertainties surrounding the pace and form of industry recovery. The company aims to achieve an optimistic outlook for 2025, requiring over 25% growth in substantial orders. Despite a weekly uptick, ASML shares dipped on Friday amidst sector-wide declines following Intel Corp.’s disappointing forecast.
Looking ahead, Stonehage Fleming’s Smit anticipates a challenging 2024 but underscores the market’s forward-looking nature, projecting about 18 months ahead to gauge industry prospects.
