Global chip stocks have collectively suffered this week amid rising geopolitical tensions
Dutch chipmaker ASML Holdings’ (AMS: ASML) stock fell greater than 10% Wednesday despite Q2 earnings and sales that beat consensus estimates.
The slump got here amid comments by former president Donald Trump that Taiwan should pay the US for defense, deepening geopolitical tensions and squeezing global chip stocks consequently.
The rumored prospect of further US restrictions limiting exports to China was also an aggravating factor.
ASML earnings snapshot
On Wednesday, ASML reported net sales of 6.24 billion euros ($6.8 billion) and net profit of 1.58 billion euros ($1.74 billion), beating the consensus estimate of 6.03 billion euros and 1.43 billion euros, respectively.
Net sales for the Dutch company fell 9.5% year-on-year, while net income dropped by 18.7%. Previously, the corporate estimated its second-quarter net sales between 5.7 billion euros and 6.2 billion euros.
ASML reported recent bookings of 5.6 billion euros for Q2, in comparison with 3.6 billion euros in the primary quarter and a rise of 24% year-on-year. Analysts expected recent bookings of about 5 billion euros for Q2.
For the third quarter, the corporate expects net sales of between 6.7 billion euros and seven.3 billion euros, while analysts expected the chip maker to offer a revenue forecast of seven.6 billion euros. ASML has kept its full 12 months outlook unchanged.
“While there are still uncertainties out there, primarily driven by the macro environment, we expect industry recovery to proceed within the second half of the 12 months,” said Christophe Fouquet, ASML CEO, in an announcement.
Regardless that ASML beat earnings, revenue, and recent bookings estimates, its shares were down by near 11% on Wednesday. The dip is primarily linked to a Bloomberg report published on Tuesday, which said that the U.S. has informed its allies, including the Netherlands, that it might take unilateral motion to limit exports of chip equipment to China.
This fuelled investor concerns over the earnings potential of ASML, which is already restricted from selling most of its advanced product lines in China. The East Asian nation is a vital marketplace for the Dutch firm, accounting for 49% of its sales in each Q2 and Q1 2024.
Previously, the corporate said that export restrictions, which were introduced at the beginning of the 12 months, could affect 10% to fifteen% of its China sales this 12 months.
The U.S. is ratcheting up pressure to curtail Chinese advances within the semiconductor industry, and ASML, which has a monopoly in manufacturing machines that produce essentially the most advanced semiconductors, appears to be a key a part of this U.S. plan.
At the beginning of the 12 months, the Netherlands banned ASML from exporting its second-most advanced category of machinery—immersion DUV lithography machines—to China. It have to be noted that the Dutch firm never received permission to export its most advanced extreme ultraviolet technology to China.
ASML still provides services to the machines that Chinese chip makers bought before the restrictions. The Biden administration has reportedly informed its allies that it might use the foreign direct product rule if the equipment maker continues such practices. The rule allows the U.S. to impose controls on foreign-made products that use even a small amount of American technology.
Despite such geopolitical headwinds, ASML stock is up greater than 35% YTD, driven primarily by the demand for high-powered chips needed for AI applications. Regardless that AI accounts for a comparatively small a part of ASML revenues, it is anticipated to grow significantly going ahead, something that Fouquet, the corporate’s CEO, also hinted at.
“We currently see strong developments in AI, driving many of the industry recovery and growth ahead of other market segments,” he said in an announcement.
The world’s biggest chipmakers, including TSMC, Intel, and Samsung, are developing recent semiconductor manufacturing plants which might be more likely to use ASML’s technology.
Regardless that geopolitical headwinds will proceed to tug ASML stock down for a while, we consider AI penetration will proceed to push the Dutch firm’s refill. Furthermore, the corporate could offset losses in China by increasing business in other markets, especially within the U.S.
Thus, the present drop in ASML stock could prove an excellent entry point for investors who plan to carry it for the long run.