Recently, $ASML Holding NV(ASML)$ investors faced disappointing news. The chip manufacturing giant reported third-quarter results that fell short of expectations and lowered its sales forecast for 2025. Following the announcement, the stock plummeted 16% on the first day and another 6% the next.
This shockwave was so intense that it dragged the entire chip industry down, putting pressure even on leaders like $NVIDIA Corp(NVDA)$ . As a frontrunner in the semiconductor sector, ASML has seen some slowdown in demand for its lithography machines, and investors interpreted this as a sign of trouble across the board.
A Buying Opportunity？
However, with the historical volatility in order bookings, savvy investors might find a contrarian buying opportunity. After some consolidation, ASML’s valuation looks much more appealing, and the sudden shift in sentiment suggests the market could be overreacting.
In short, companies like $Taiwan Semiconductor Manufacturing(TSM)$ need ASML’s machines to produce microchips that power everything from industrial equipment to electric vehicles. Plus, ASML sells advanced lithography software and stands to gain from the increasing investments in AI chip production.
It's important not to overreact to the recent dip in net system orders. Historically, these orders have fluctuated widely. For instance, ASML saw a 42% decline in Q3 last year, only to rebound by 253% in Q4.
Strong Earnings Projections
From a profitability standpoint, there’s little to worry about. If ASML's fundamentals were truly deteriorating, we wouldn't have seen a 3.3% increase in operating profit margin to 32.7% for Q3 2024.
Market projections suggest that ASML will post earnings of $20.72 per share this year, climbing to $28.20 next year—a staggering 36% year-over-year growth. If ASML’s net sales reach €35 billion next year, it’s likely to come with improved operating margins.
Attractive Valuation
As of now, ASML shares are priced at $700.60, which translates to a 33.8 times earnings multiple for 2024. If we look ahead to next year’s profits, that multiple drops to 24.8. Investors can snag this stock at a 37% discount from its July high of around $1,100, and it might have already hit bottom after a sharp sell-off post-Q3 earnings.
Moreover, TSMC's robust performance provides much-needed reassurance that the semiconductor industry is indeed on the rebound. For contrarian investors, this is a golden opportunity to back ASML and capitalize on its potential.
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