Are Investors Offered A Rare Entry Point Into ASML After Earnings?

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ASML, a critical player in the semiconductor industry, holds a monopoly on advanced lithography systems crucial for producing smaller, faster chips.Despite solid financials and a strong moat, ASML's ...

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existing investors should hold steady.Monty Rakusen ASML (OTCQX:ASMIY) identifies itself for investors as the \"most important tech company you've never heard of\". Indeed, ASML does not share the fame and trendiness of rock star Nvidia, or of other big names in the chips industry such as TSMC, Broadcom, AMD and Intel. But ASML is as important, it is a hidden gem sitting back upstream at a critical part of the value chain of the semiconductor chips industry. Critical niche and moat-protected business model ASML was founded in the Netherlands in 1984 - when modern-day technology was in infant stages, and when AI was more reserved for sci-fi futuristic movies. The company has grown to employ 42,000 employees today in more than 60 locations. Last year, the company generated EUR 28 billion in turnover, with a gross margin of 51%, leaving it with a generous EUR 14 billion to invest EUR 4 billion in R&D and in strengthening its niche and expanding its growth. Revenues increased by 130% in the past five years. ASML has a niche in lithography systems, which use laser light to print patters of microchips. The systems that ASML produces are a mix of hardware and software innovations that are unique to the company. ASML then supplies these systems to semiconductor manufacturers such as Taiwan Semiconductor Manufacturing Company, which produces standardized foundry chips for other companies down the value chain, such as Nvidia, AMD and Qualcomm. ASML has an effective monopoly in producing lithography systems that can manufacture chips smaller than 7nm node, which allows chip manufactures to produce smaller and faster chips. With 10,000 customers, ASML covers a wide range of industries that use semiconductors, ranging from fast-moving industries related to AI and cloud computing to slower-moving industries such as telecoms, healthcare, automotive and consumer electronics. Recent results tempered the optimism This week, the share price of ASML dropped by around 20% in 2 days - so far. The shares now sit where they were at the beginning of the year. The stampede of exit by investors was prompted by an unplanned early announcement of Q3 results that were pretty gloomy - defying all the recent hype about AI's boosting impact on the semiconductor industry. In its announcement, ASML estimated that 2024 full-year sales would be a standstill compared to 2023, with only a minor uplift. 2025 is forecasted by the company to have another minor uplift, with an increase in sales of only 7% on the lower side of the range. The company also reported that gross margins will be subdued - albeit remaining in the 50% range - as the market is subdued and customers are \"cautious\". New customer orders came in around half expectations, and half the rate of earlier in the year. Adding to that; recent half-year sales dropped by 16%, net income by 18% and operating income margin by 2%. Even with a 20% drop, the current share price of EUR 650 per share leaves the shares trading at 32x, 2023 P/E. This is a modest valuation for the neck-breaking speed growth that the company was expected to experience. The share price dropped by 37% from the all-time high that was reached only 3 months ago, and is now sitting 18% higher than the 52-week low set exactly 1 year ago in October 2023. The median analyst estimates of share price is EUR 960 per share - providing a 44% upside. But the recent Q3 results announcement put a harsh brake on expectations of lofty growth. A 30x P/E is definitely not high if growth is in the double-digits range. But if growth reaches a standstill or is in single digits, then there could be concerns that a hefty valuation premium does not have legs. Investors are justified to be cautious; even with the 20% drop, a 32x P/E is still on the high side. Demand risks China accounted for around 40% of sales in the past year. Definite slowdown of the Chinese economy and of consumer purchasing power, combined with Western restrictions on China's access to semiconductor technology, are clear contributing factors behind the slowdown of business for ASML. Adding to that; aside from AI and advanced computing-related sectors, there seems to be a wider slowdown in demand for semiconductor, which could be signs for a wider economic slowdown - not only in China but elsewhere as well. Fundamentally solid investment, but caution warranted about timing of entry ASML, without doubt, has a solid business model, that is well-protected by a strong technological and customer-reach moat. The company's financial metrics are very solid; solid revenue generation, superior profitability, and a very strong balance sheet underpinned by an A+ credit rating from Standard and Poor's. ASML is not a high-risk investment. But ASML does not operate in a vacuum; if its industry slows down, so will its growth. Whether the current valuation represents the right entry point, or whether ASML's share price has more to shed, this remains to be seen. For existing investors; there is no need to panic or to consider selling for a loss. For fresh investors, close monitoring is essential to pick the right entry point.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2476908103"}