ASML Holding, a key player in the semiconductor industry, has reported impressive second-quarter results, bolstering investor confidence in the company’s future growth prospects. The Dutch semiconductor equipment giant’s robust performance can be attributed to the strong demand for its chipmaking equipment, driven by the increasing need for semiconductors and the ongoing artificial intelligence (AI) boom.
ASML’s second-quarter bookings of 5.6 billion euros exceeded analysts’ expectations of 4.41 billion euros, indicating a significant increase compared to the same period last year and the previous quarter. Notably, the company received 2.5 billion euros’ worth of orders for its extreme ultraviolet (EUV) lithography machines, which are crucial for manufacturing advanced chips based on smaller process nodes. These chips offer high computing power while consuming less electricity, making them ideal for AI applications.
Despite the positive bookings, ASML’s stock experienced a 12% decline following the release of its results. This can be attributed to two factors. Firstly, the company’s revenue outlook for the current quarter fell short of the Street estimate, with ASML projecting 7 billion euros compared to the expected 7.5 billion euros. Secondly, concerns over potential restrictions on sales to China, which accounted for nearly half of ASML’s revenue in the last quarter, contributed to the sell-off. Reports of the Biden administration considering stricter sanctions on semiconductor technology sales to China have raised apprehensions among investors.
However, it is crucial for investors to consider the bigger picture. The growing demand for AI chips over the next five years is expected to drive ASML’s growth, potentially offsetting any loss of business in China due to stricter sanctions. The global AI chip market is projected to generate $296 billion in revenue by 2030, with an annual growth rate of 33%. This will create a significant demand for EUV lithography equipment, and ASML, being the sole provider of such machines, is poised to benefit from the expanding market. Market Digits estimates that the EUV lithography market could generate $37 billion in revenue by 2030, compared to $9 billion in 2023.
ASML anticipates a return to growth in 2025 following a flat revenue performance in 2024, driven by the recovery in the semiconductor market and the increasing adoption of AI. Analysts predict a 3% increase in ASML’s top line to $30.2 billion in 2024, with solid forecasts for the subsequent years. Furthermore, ASML’s earnings are expected to grow at a compound annual growth rate of 21% over the next five years, with a faster pace anticipated in 2025 and 2026.