To The Moon

As the lithography giant, $ASML Holding NV(ASML)$ fully benefits from AI. After all, $NVIDIA Corp(NVDA)$ 's GPU needs to use EUV lithography machines.

That's why its stock price has skyrocketed, up over 29% this year, significantly outperforming the index.

However, the latest quarterly report just hit, and it's not what we expected. New lithography machine orders for the quarter came in at €3.6 billion, falling short of analysts' predictions of €4.6 billion. And new EUV orders? Just €656 million, a far cry from the €5.6 billion in the previous quarter.

Yikes! ASML's stock price plunged in Amsterdam.

As a result, with the stock at record highs and these disappointing results, is the AI bull stock ASML heading to crash?

Don't panic yet! Short-term fluctuations don't change the long-term picture.

1.Gross margin beating expectations

Specifically, ASML's revenue for the quarter hit €5.29 billion, beating the management's guidance, but slightly below analyst expectations of €5.47 billion, down 21.6% year-on-year:

In the first quarter, the gross margin hit 51%, far surpassing the management's guidance of 49% and analysts' expectations of 48.8%, driving net profits above expectations.

The main reason for the gross margin beating expectations was the better-than-expected shipment of EUV.

Revenue was slightly below expectations, but net profits exceeded them. Overall, ASML's first-quarter report was decent, but the problem lay in new orders.

In terms of amount, new orders in the first quarter were €3.6 billion, a year-on-year decline of 3.8%, significantly lower than analysts' expectations.

It might look like a disaster, but historically, ASML's quarterly new order amounts have fluctuated wildly, often exceeding analysts' predictions.

2.Strong growth outlook

Looking ahead to 2024, ASML maintained its previous prediction of revenue staying flat compared to 2023, while maintaining a strong growth outlook for 2025.

So, the fact that new orders missed expectations doesn't necessarily mean ASML's future performance will deteriorate.

After all, the semiconductor market has clearly warmed up. For instance, according to the Semiconductor Industry Association (SIA), global semiconductor sales increased by 16.3% year-on-year in February.

Nearly 290 million smartphones were shipped worldwide in the first quarter, up 7.8% from a year earlier, according to IDC. PC market shipments were 59.8 million units, an increase of 1.5% year-on-year, returning to pre-pandemic levels.

Mobile phones and PCs are two major application markets for semiconductors, and coupled with AI demand, the semiconductor industry is poised to enter a super boom cycle.

That's why ASML's management has maintained its target of revenue between €30-40 billion and a gross margin of around 55% by 2025. In the coming quarters, ASML just needs to maintain orders of €4 billion per quarter, which is not a tall order at all.

With the shipment of more advanced EUV lithography machines, ASML's profitability will see a significant boost, contributing even more to its profit margins.

3.Stock price rebound?

In the short term, ASML's stock price has seen a big surge due to high investor expectations, driving up its valuation. Any slight miss in expectations can trigger sharp fluctuations in the stock price.

But looking at the long term, ASML's fundamentals remain unchanged. With semiconductor demand picking up, as a backend equipment manufacturer in the industry chain, ASML's performance will eventually rebound.