Spotlight: Focusing on Q4 2025 U.S. Stock Earnings Reports Dutch chip equipment manufacturer ASML Holding NV saw its latest earnings report initially propel its shares to another significant surge, a move that had previously cemented its position as Europe's most valuable company by market capitalization. However, subsequent market doubts about its capacity to fulfill a record order backlog triggered a sharp stock decline, highlighting that market expectations for the company are already at an extremely elevated level. Following the release of its fourth-quarter results on Wednesday, ASML's stock price briefly hit a record high before reversing course and ultimately closing 2% lower. This volatile trading pattern underscores how the company, which supplies equipment to chipmakers like TSMC to help them produce AI chips for Nvidia, is continually testing the limits of investor acceptance. So far this month, ASML's stock has surged by 34% cumulatively. At its current price, the stock trades at 42 times expected earnings for 2026, significantly higher than Nvidia's multiple of 25 times. Analysts have been consistently raising their performance forecasts for the company. ASML's management projects sales growth for 2026 to be in a range between 4% and 19%. "At this point, most of the positive news is already priced into the stock," said Han Dieperink, Chief Investment Officer at Orbis Investments, which recently halved its stake in ASML to 45,000 shares but maintains an overweight position. "The key issues now are valuation and positioning." ASML's current market capitalization stands at 4670 billion euros (approximately $5590 billion). As the stock price approaches record highs, investors and analysts are actively debating how much further growth potential the company has. ASML holds an order backlog of 388 billion euros. However, the production cycle for its large chip lithography machines is lengthy, taking up to a year to build a single unit. ASML is the world's only manufacturer of extreme ultraviolet (EUV) lithography systems, which are critical for creating the intricate circuits of advanced chips. Market bulls on ASML point to its AI-driven growth prospects. Its largest customer, TSMC, has outlined plans for significant capacity expansion in 2026, with further expansions scheduled for 2027 and 2028. Memory chip makers like Samsung, SK Hynix, and Micron have also announced AI-related expansion plans, all of which are expected to benefit ASML. "While on the surface the valuation appears very high, we are not relying on multiple expansion for our returns," said Gerrit Smit, Chief Investment Manager of the Stonehage Fleming Global Select Equity Fund and an ASML investor. He forecasts that ASML's equipment shipments will achieve an annual growth rate of 15% through 2030. "I'm not saying they can charge any price for their machines, but this 15% is purely volume growth. Concurrently, increased production capacity will lead to improved operational efficiency and subsequently higher profit margins," Smit added. Analyst Michael Roeg of Degroof Petercam expects the pace of earnings upgrades in the semiconductor sector to slow down. "This could lead the market to question whether the risk-reward profile justifies such a high price-to-earnings ratio," he said. For investors, buying ASML, along with peers like Applied Materials, Lam Research, KLA, and Tokyo Electron, is seen as an optimal way to gain exposure to growing chip demand while avoiding the specific operational risks associated with individual chip manufacturers. Whether ASML can ramp up production capacity to meet market demand remains a significant concern. The company's CEO, Christophe Fouquet, assured analysts on Wednesday that ASML would "definitely not be a bottleneck" for the semiconductor industry. In a research note on Thursday, J.P. Morgan analyst Sandeep Deshpande stated that, considering the AI investment cycle is expected to last for years, ASML's valuation looking out to 2027 appears reasonable. "We do not see a capacity issue," he noted. Analyst Jos Versteeg of Insinger Girisen mentioned that new chip factory constructions planned by companies like TSMC and Samsung could face delays, as recently seen in the U.S., but he still recommends the stock due to ASML's long-term growth prospects. "Some people think it's too expensive, but if you think that way, you'll never buy ASML," he said. "I've seen too many clients wait on the sidelines and end up regretting it."
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