(Bloomberg) — After a volatile summer, ASML Holding NV investors hope the earnings report will highlight the chip equipment maker’s strong position as an artificial intelligence industry.
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Shares in Europe’s most valuable technology company have fallen about 20% from July highs, hurt by tighter U.S. restrictions on the company’s China operations and the prospect of more rotation in the sector this summer. These factors overshadowed better-than-expected orders for ASML’s machines, ending an AI-driven bull market that has seen the stock nearly double since early 2023.
“We expect healthy orders,” Jefferies analyst Janardhan Menon said. “We think TSMC orders will increase further and China will be fairly stable.” He expects bookings to exceed the 5.57 billion euros ($6.1 billion) reported last quarter. . The company is expected to report third-quarter results before European markets open on Wednesday.
“If such orders come in, I think the inventory will be fine,” Menon added.
The stock’s forward P/E ratio is hovering around 30x, so while any increase would be welcome, this is lower than the average over the past five years and well below the 37x for AI stocks like Nvidia. . Still, the company trades at a higher price than a group of other chip equipment makers, data compiled by Bloomberg show. ASML counts Taiwan Semiconductor Manufacturing Co. and Intel among its biggest customers and has a monopoly on manufacturing the machinery that produces cutting-edge chips.
Orders from China will be particularly noteworthy. In July, Bloomberg reported that the United States is considering imposing the toughest trade restrictions available if the Netherlands resists requests to limit ASML’s ability to service restricted equipment already in China. The stock price fell after the news was announced. The Dutch government then planned to limit ASML’s ability to repair and maintain top-of-the-line equipment in the country, Bloomberg reported.
So far, export restrictions have increased ASML’s orders from China, which is buying up unlimited amounts of old kit to make more mature types of semiconductors. The country has accounted for nearly half of ASML’s revenue in recent quarters, but some analysts expect this to start declining, putting pressure on the stock price in the future.
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UBS analyst François-Xavier Bouvigny said the company could lose nearly a quarter of its sales in China next year, with 45% of its total revenue in the country at risk of further regulation. It is said that it has been done. He expects earnings to be positive in the short term, but the China issue weighs on stocks in the long term. Bouvigny recently downgraded ASML, saying the revenue growth potential from AI was overestimated.
Still, with the US election looming, geopolitics has taken a backseat as investors wait for more information on the incoming administration’s plans. And there are some signs that the AI boom in the semiconductor sector is still going strong. ASML customer TSMC recently posted better-than-expected earnings, while other AI stocks such as Nvidia have rebounded from their summer slump.
For ASML, options data shows an implied daily move of about 5.5% in either direction following the results.
The majority of analysts tracked by Bloomberg rate the stock a “buy,” with an average price target suggesting an upside of about 24% over the next 12 months, according to data compiled by Bloomberg. , Wall Street remains generally positive.
Apart from the results, ASML’s November Investor Day will be an opportunity for the company to reassure investors about its orders and position in China.
Jefferies’ Menon noted that while bears are talking about delayed orders from Intel, “I haven’t heard of a pushout from any company anywhere in the world,” adding that the company’s investor day We hope that the guidance will be raised.
ASML’s current long-term guidance is for 2025 sales in the range of €30 billion to €40 billion and 2030 sales in the range of €44 billion to €60 billion.
Citi analyst Andrew Gardiner also expects the stock to rise, with ASML likely to reiterate its confidence heading into 2025, supported by long-term opportunities from AI.
“Investor sentiment deteriorated over the summer, both in terms of the outlook for 2025 and demand beyond,” he said. Earnings results and investor day are likely to be “positive catalysts.”
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Earnings deadline is Wednesday
–With assistance from Subrat Patnaik.
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