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ASML (NASDAQ:ASML) shares fell on 17 July after the Dutch firm, which can also be listed within the US, launched its Q2 earnings earlier than the European market opened.
Whereas there have been some sturdy Q2 outcomes, the corporate, which makes lithography machines, downgraded a few of its forecasts for the third quarter.
Let’s take a better take a look at the inventory, the market motion, and whether or not this might be a possibility for UK buyers.
ASML beats expectations, however steering hurts
ASML reported sturdy Q2 2024 outcomes, with complete web gross sales of €6.2bn, a web earnings of €1.6bn, and a gross margin of 51.5%.
These figures largely surpassed market expectations attributable to greater gross sales of immersion methods. Nonetheless, gross sales had been down yr on yr with the corporate pointing to cyclical actions inside the market.
Trying forward, ASML initiatives Q3 web gross sales between €6.7bn and €7.3bn, with a gross margin of 50-51%. Whereas its FY2024 outlook stays fixed, there have been some downgrades to the Q3 forecast.
ASML President and Chief Govt Christophe Fouquet reiterated his earlier commentary that 2024 is one thing of a transition yr for the corporate.
Fouquet says that ASML sees sturdy developments in synthetic intelligence (AI), which can drive demand for its know-how transferring ahead.
This makes up for a weaker couple of years for the lithography section with the world transferring right into a semiconductor glut throughout 2022-2024.
What does ASML do?
ASML’s a number one supplier of photolithography machines, specialising in superior excessive ultraviolet (EUV) lithography methods. These machines are essential for semiconductor manufacturing, enabling the manufacturing of smaller, extra highly effective chips, and positioning ASML as a key participant within the international semiconductor business.
It has a shocking 82.9% share of the market and a monopoly on essentially the most superior EUV methods. As such, it’s one of the crucial essential gamers serving the booming AI and knowledge centre market. That’s as a result of chipmakers similar to TSMC want lithography machines to construct Nvidia and AMD‘s chipsets.
Geopolitics is all the time a difficulty
ASML’s place within the international semiconductor provide chain has made it a focus in geopolitical tensions, notably between the US and China.
Based on latest reviews, the US is contemplating implementing the international direct product rule (FDPR), which might enable it to impose controls on foreign-made merchandise incorporating even minimal quantities of American know-how.
This transfer goals to leverage commerce guidelines with allies and curb China’s entry to superior semiconductor know-how and would impression ASML and its friends.
China, which accounted for 29% of ASML’s web gross sales in 2023, is a big marketplace for the corporate, second solely to Taiwan.
Nonetheless, extra prohibitions on ASML’s exports may actually harm its prospects.
Ought to we take into account it?
ASML’s a fantastic firm, with sturdy margins and a monopoly in one of the crucial essential sectors globally.
Whereas it’s not low cost at 51.3 instances ahead earnings and with a price-to-earnings-to-growth ratio of two.25, it’s exhausting to discover a extra dominant firm in any a part of the tech sector.
It’s definitely a inventory that’s on my radar, and the appreciation of the pound — £1 to $1.30 on the time of writing — does make the US-listed shares cheaper.
Whereas particular person buyers need to make the choices which can be proper for them, I believe ASML is value contemplating as an organization with a deep moat and powerful progress potential.
