To The Moon

Just now, the lithography giant $ASML Holding NV(ASML)$ released its Q2 earnings, a mixed bag indeed!

ASML Q3 Guidance Misses

Let's dive in: Q2 revenue hit €6.24 billion, down 9.5% YoY but still surpassed management's guidance of €6.2 billion and analysts' forecast of €6 billion.

Gross margin was 51.5% in the second quarter, topping both management's 51% guidance and analysts' estimate of 50.6%.

And new orders? A whopping €5.57 billion, far exceeding analysts' prediction of €4.41 billion.

However, ASML's Q3 guidance fell flat. Expected revenue ranges from €6.7 billion to €7.3 billion, missing analysts' mark of €7.46 billion.

As results, ASML's share price plunged 3.48% in the evening trading of Tiger Securities:

The takeaway from ASML's Q2

Firstly, the Q2 performance exceeded expectations across revenue, profit, and new orders. Behind this, we see a recovering semiconductor cycle, skyrocketing AI demand, and China's intensified purchases of lithography machines amid US chip sanctions.

In Q2, China accounted for 49% of ASML's equipment revenue, up from 24% a year ago and just 10% in Q2 2022.

Secondly, the Q3 revenue guidance missed analysts' expectations, and the gross margin guidance of 50%-51% also fell short of analysts' 51.1% estimate.

Are ASML's fundamentals improving?

Absolutely not! ASML's outlook remains unchanged from earlier – accelerated growth in the second half, a blowout year in 2024, and full-year 2024 revenue on par with 2023, albeit with slightly lower gross margins.

The script's still on track as per management, but analysts' expectations have soared. With the AI boom, investors and analysts alike had high hopes for ASML's performance.

Before the Q2 earnings, ASML's share price had soared 41% YTD. Now, with Q3 guidance missing analysts' mark, the share price tumble is understandable.

This is a clash between ASML's lofty valuation and unmet lofty expectations, not a sign of weakening fundamentals.

At present, ASML's P/E ratio stands at 57x, a decade-high. If the share price adjusts post-Q2, it might not be all bad. Considering the massive new order surplus, ASML's 2024 blowout is all but guaranteed!