According to industry group SEMI, the semiconductor equipment industry is expected to turn around in 2024 after a difficult 2023 with sales down 1% to $106 billion. The good news is that the growth trajectory established in 2024 is likely to be sustained in 2025 and beyond.
Semiconductor equipment sales are expected to grow 6.5% to $113 billion in 2024. More importantly, semiconductor equipment spending is expected to jump to a new record of $121 billion in 2025, and jump even further to $139 billion in 2026. So now might be a good time to take a closer look at one company that could benefit from this market growth: ASML Holding. (ASML -0.18%).
ASML stock disappointed investors in 2024, with the stock down 5% at the time of writing. These gains compare with the roughly 24% gain recorded by the PHLX Semiconductor Sector Index this year. However, there are signs that ASML’s fortunes will improve next year.
Let’s see why.
ASML’s financial performance next year may exceed expectations
ASML is a Dutch semiconductor equipment company known for producing advanced chip manufacturing equipment that plays a critical role for chipmakers and foundries that make chips for products ranging from smartphones to computers to data center servers. Masu. Specifically, ASML holds a monopoly in extreme ultraviolet (EUV) lithography equipment, which is considered the most advanced chip manufacturing equipment.
EUV lithography equipment allows chipmakers to produce chips at scale based on advanced process nodes such as 7 nanometers (nm), 5nm, and 3nm. Demand for these chips is strong. For example, Apple uses the 3M process to manufacture its smartphone processors. Nvidia and Advanced Micro Devices have been using a 5nm process to manufacture artificial intelligence (AI) chips, but are expected to move to a 3nm process node in the future.
All of this bodes well for ASML. ASML struggled in 2024 as customers backed off from business expansion due to sluggish demand for semiconductors in 2023. ASML expects sales of 28 billion euros at the end of 2024, a slight improvement from last year’s sales of 27.6 billion euros.
ASML expects sales to increase in the range of €30 billion to €35 billion in 2025, an increase of 16% at the midpoint. The good news is that ASML is on track to beat its guidance, considering it has an order backlog worth €36 billion at the end of Q3 2024.
More importantly, ASML will continue to receive orders in 2024 despite tight customer spending on manufacturing equipment. It received bookings worth €11.8 billion in the first nine months of 2024, slightly higher than the €10.8 billion worth of bookings in the same period last year.
As spending on semiconductor equipment increases next year, ASML’s order book is likely to continue to grow, with the company potentially able to fill more orders as demand increases. Investors should note that 17 new semiconductor manufacturing plants are scheduled to come online next year, leading to record capacity increases that are nearly double the semiconductor production capacity that will come online this year.
Accelerating earnings growth and attractive valuation make this stock a solid buy
Analysts expect ASML’s profits to grow 22% in 2025, with an even larger increase in 2026.
Data by YCharts.
That’s why investors looking to take advantage of growth in semiconductor equipment spending beyond 2025 may want to take a closer look at ASML stock in particular. That’s because ASML stock in particular trades at an attractive forward P/E of 29 times. The forward earnings multiple for the Nasdaq 100 index is 27.4x (using the index as a proxy for tech stocks).
Assuming ASML actually achieves earnings of $31 per share in 2026 and trades at 35 times earnings at that time, the stock could reach $1,085. That’s a 53% increase from current levels, and a solid reason for investors to buy this semiconductor stock, which has the potential to accelerate in the coming years.
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, and Nvidia. The Motley Fool has a disclosure policy.
