ASML, one of my favorite semiconductor stocks, is down about 16% in the past week -- is this a buying opportunity? 🤔
ASML is a pivotal player in the semiconductor equipment industry, renowned for its lithography systems that are central to chip manufacturing. The company's tech is integral to producing ever smaller and more powerful microchips, thereby driving the advancements required to maintain Moore's Law. ASML's machines are critical for a range of semiconductor applications -- from high-performance computing and smartphones to automotive and industrial uses.
ASML's leadership is solidified through its development of Extreme Ultraviolet (EUV) lithography technology -- which allows the creation of circuits smaller than ever before, enhancing the chip performance while reducing cost and energy consumption. This technology is critical as the semiconductor industry pushes towards more advanced nodes.
ASML maintains a commanding position in the semiconductor industry -- controlling nearly 90% of the market share in next-generation EUV lithography, which is crucial for advancing modern chip manufacturing. This dominance is reinforced through strategic relationships with key clients such as TSM $Taiwan Semiconductor Manufacturing(TSM)$ , INTC $Intel(INTC)$ , and Samsung $SAMSUNG FANG(02814)$ .
Management is focused on cost control to sustain margins against the backdrop of the cyclical semiconductor industry. They predict a resurgence in growth by 2025 after a transitional 2024, driven by the uptake of ASML’s High NA EUV technology by major customers. This advanced technology enhances the precision of chip manufacturing, and despite initial cost concerns, it's beginning to gain traction among top clients -- with Intel already incorporating these machines and Samsung and potentially TSMC expected to follow suit.
ASML projects strong operating EPS growth in 2024 with continued expansion into 2026. The company also benefits from stable maintenance revenue from its large installed base, contributing to financial stability. Furthermore, ASML has maintained a consistent $40B backlog even during downturns -- showcasing its strong market position. However, ASML faces challenges such as increasing competition, potential economic slowdowns, and geopolitical tensions, especially with 49% of revenue coming from China.
These are the levels that I like 👇
• $745 -- Average VWAP from Nov 2022
• $685 -- 200-Week SMA
• $600 -- Massive volume shelf
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