To The Moon

Just now, the lithography giant ASML $ASML Holding NV(ASML)$ released its Q1 results for 2023, with financial data exceeding market expectations, of which Q1 revenue was 6.746 billion euros, exceeding analysts' expectations of 6.3 billion; Gross margin was 50.6% versus market estimates of 49.8% :

Despite the impressive results, ASML shares fell as much as 4.4% in European trading after fears of customer cutbacks materialized as Q1 orders fell 46.2% to $3.75 billion:

As a giant of lithography, ASML is in a semiconductor industry with obvious periodicity. From the perspective of the industry chain, lithography machines and other semiconductor equipment are in the upstream of the industry chain, while downstream customers are mainly chip manufacturers such as TSMC $Taiwan Semiconductor Manufacturing(TSM)$ .

When semiconductors enter the downcycle, the chip designer senses it first, then passes the chill on to the chipmaker, and finally, ASML is doomed.

The cycle is doomed, but the market fears about ASML are superfluous.

In terms of quarterly revenue, ASML expects Q2 revenue to be between 6.5 - 7 billion euros, significantly higher than analysts' estimates of 6.42 billion, an increase of about 24.3% year-on-year:

Secondly, ASML maintained its forecast for 2023 revenue growth of more than 25% in 2023, and did not lower its forecast as a result of customer order cuts in Q1.

Although growth in 2024 will be affected, the semiconductor industry is expected to bottom out in the second half of this year. ASML's orders on hand are as high as 38.9 billion euros, far exceeding the 21.2 billion euros for the whole of 2022.

Judging from the revenue growth in the last decade, ASML has not experienced negative growth in a single year. Even in the semiconductor downcycle of 2018-2019, ASML maintained an 8% growth rate, much higher than that of major etching equipment Applied Materials $Applied Materials(AMAT)$ .

It could be said that ASML has smoothed the impact of the semiconductor cycle well by virtue of its EUV lithography monopoly:

Looking further ahead, ASMLexpects revenues of 30-40 billion euros in 2025, and 44-60 billion euros in 2030.

It is fair to say that ASML's future revenue growth may be slow, but the long-term outlook is very bright.

As the chip manufacturing process moves into 3-nanometer mass production this year, and 2-nanometer era after 2025, chip manufacturers will buy more and more expensive EUV lithography machines.

ASML's profitability will also be significantly improved, with gross margins expected to range from 54-56% in 2025 to 56-60% in 2030. That is much higher than the 50.5% in 2022, which means that profits will grow faster than revenues in the future.

Finally, the last time ASML's orders fell sharply was in the fourth quarter of 2018, when it fell 45.9% , very close to the 46.2% decline in Q1 this year, while ASML's share price has been bullish since the beginning of 2019.

Cycle, cycle, when the industry is at its bleakest, this may be a sign of an impending reversal:

According to analysts' forecasts, adjusted net profit in 2023 is about 7.3 billion euros, an increase of 29% over 2022, based on which ASML's dynamic price-to-earnings ratio is about 31.7 times.

Judging from the valuation trend of ASML in the last 10 years, the risk above 35P/E is higher:

With the explosion of ChatGPT, major Internet companies have joined the battle of large models, downstream applications are about to break out, and the era of AI for everything is coming, which will drive up the demand for high-end GPU and all kinds of chips, greatly stimulating the demand for EUV lithography machines.

The semiconductor industry is not only a cyclical industry, but also a growth industry with no ceiling!