ASML Holding (NASDAQ:ASML)
Earlier in the day, shares of ASML Holding (NASDAQ:ASML), a Dutch semiconductor equipment major, jumped 8.2%. However, as of 2:40 PM ET, the ASML stock had retraced to a 6% gain.
Last night, the specialized firm that monopolizes extreme ultraviolet (EUV) technology announced financial results for the third quarter, showing sales and profitability beyond projections. In addition, management provided optimistic forecasts for the next fiscal period.
Semiconductor equipment stocks had been hurt by worries regarding a chip slowdown next year and newly announced curbs on sales to China, so the beat came against the background of a significant decline in the stock price. However, the study from ASML stock seemed to ease such anxieties… at least temporarily.
What’s the Reason?
ASML’s third-quarter revenue was 5.8 billion euros, up 10.2% year over year. Its profits per share were 4.39 euros, a record high for the company. Both of those numbers are better than anybody anticipated. ASML stock also announced a sequential increase in net bookings to 8.9 billion euros. A substantial sequential increase is expected in the coming quarter, with management projecting sales between 6.1 billion and 6.8 billion euros.
For several reasons, it was encouraging to see the rapid expansion. To begin, ASML’s revenue growth has been lower than expected this year due to significant supply restrictions. Constraints like these have decreased gross margin, but the most recent quarter’s results showed a healthy 51.8%. Although it was below last year’s levels, it exceeded projections.
Second, many were concerned that some memory and chip makers’ recently announced reduction in capital spending plans would harm fourth-quarter sales. Still, given how much higher demand has been this year than supply, it doesn’t seem like this will be the case for ASML stock. While some customers have pushed back when they want their computers, CFO Roger Dassen stated in a business video interview that the “lion’s share” of customers still want their equipment as quickly as possible. Thus, the existing backlog is not more than what is needed to meet the declining demand.
This is probably because ASML’s EUV machines are best suited for the most cutting-edge logic circuits, and chipmakers are still fighting on the cutting edge, upgrading to the newest node year despite the market. More than that, there is renewed severe rivalry among the top foundries worldwide, all striving to improve their reputations as technologically advanced. In addition, nations now at the mercy of East Asian manufacturers are increasing their desire for new cutting-edge fabs as part of their attempts to restore semiconductor manufacturing with incentives like the CHIPS Act in the United States. The combined effects of these variables are sufficient to offset the industry’s short-term decline in consumer electronics.
Furthermore, ASML stock said that the new U.S. restrictions on sales of equipment to China for cutting-edge manufacturing would have little effect. Although ASML does not currently offer EUV equipment to the Chinese market, DUV equipment is exempt from the new regulations since it contains almost entirely non-Chinese technology, as pointed out by Dassen. While ASML is currently assessing the new restrictions, he did highlight that there may be some indirect effects if new Chinese fabs are delayed owing to a scarcity of other non-ASML U.S. equipment.
What’s Next?
By shutting off China and financing new manufacturing on their own coasts, Western democracies are causing a tremendous upheaval to the semiconductor industrial complex. In addition, although digitalization, AI, and 5G are all stable long-term prospects, the consumer electronics industry is now experiencing a slowdown due to excessive inflation.
The current market volatility is dragging down high-quality, wide-moat equities like ASML stock. Still, for patient investors, this might be a huge opportunity. After all, if these firms’ innovations are so crucial that they’ve been outlawed in certain nations, then they must be doing something right.
As long as there is a sustained increase in global demand, someone will manufacture semiconductors. The current price of ASML stock is the lowest in years. After seeing the earnings report, it seems like a good deal.
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ASML stock price soared after the company reported a third-quarter performance far beyond expectations and provided an encouraging outlook for the current quarter.
Featured Image – Megapixl © Joeppoulssen
Author Shariq Khan 
