ASML Holding (NASDAQ: ASML) is a critical player throughout the semiconductor industry, as chipmakers and foundries use its equipment to fabricate chips. That explains why the Dutch semiconductor equipment giant has clocked impressive gains on the stock market to this point five years.
The robust demand for ASML’s chipmaking equipment to satisfy the growing need for semiconductors has led to a nice jump in its revenue and earnings, as seen throughout the preceding chart. The nice part is that ASML seems built for more growth over the following five years, since the demand for its offerings stays solid amid the artificial intelligence (AI) boom. This became evident from the company’s results for the second quarter of 2024, released on July 17.
Let’s take a greater take a take a look at ASML’s latest quarterly performance and check why investors can expect more upside on this semiconductor stock over the following five years.
ASML sees big boost in bookings but investors still hit the panic button
All eyes were on the bookings ASML received throughout the second quarter, and that figure of 5.6 billion euros was well ahead of analysts’ expectations of 4.41 billion euros. ASML’s bookings stood at 4.5 billion euros within the equivalent quarter last 12 months and three.6 billion euros in the first quarter of 2024.
So the company’s order book increased nicely last quarter, each sequentially and on a year-over-year basis. It’s price noting that ASML received 2.5 billion euros’ price of orders for its extreme ultraviolet (EUV) lithography machines last quarter, accounting for nearly half of its total orders for the period.
These EUV machines are used for making advanced chips based on smaller process nodes, which can be capable of delivering high computing power while consuming less electricity. Foundries and chipmakers are using these EUV machines to churn out AI chips, which explains why its EUV bookings increased by 56% on a year-over-year basis, contributing to a big backlog price 39 billion euros.
Nevertheless, investors pressed the panic button following ASML’s results for a couple of reasons and the stock fell 12%. First, the company’s revenue outlook of seven billion euros for the current quarter is lower than the Street estimate of seven.5 billion euros. Second, concerns about restrictions on ASML’s sales to China have also contributed to the sell-off in ASML stock following its latest results.
That’s because China accounted for nearly half of ASML’s top line last quarter, and the demand for the latter’s older equipment is powerful in that country. So reports that the Biden administration is considering imposing stricter restrictions on sales of semiconductor technology to China are weighing on ASML stock.
Investors shouldn’t miss the larger picture
Investors would do well to try the broader picture, since the healthy demand for AI chips over the following five years should allow ASML to beat any potential lack of business in China should stricter sanctions be imposed. The worldwide AI chip market is predicted to generate $296 billion in revenue in 2030, growing at an annual rate of 33% throughout the forecast period. This might create demand for more EUV lithography equipment.
In response to Market Digits, the EUV lithography market could generate $37 billion in revenue in 2030, compared with $9 billion last 12 months. ASML has a monopoly in EUV lithography machines, which suggests that it’s about to enjoy robust incremental revenue growth as this market expands in the long run.
Moreover, ASML is expecting to return to growth in 2025 following a flat revenue performance in 2024, driven by the recent recovery throughout the semiconductor market which is fueled by catalysts akin to AI. Analysts expect its top line to increase 3% in 2024 to $30.2 billion, nevertheless the forecast for the following couple of years is type of solid.
ASML should provide you with the choice to sustain such healthy growth for an prolonged time considering the long-term opportunity throughout the AI chip market. Analysts expect its earnings to increase at a compound annual growth rate of 21% for the following five years. Nevertheless, ASML’s earnings are expected to grow at a much faster pace in 2025 and 2026 following a small decline in the current 12 months from last 12 months’s levels of $21.22 per share.
There’s a excellent probability that ASML could grow at a faster pace than analysts’ expectations over the following five years on the back of AI-driven demand for its chipmaking equipment, and that could lead on available on the market to reward this AI stock with healthy gains. That’s the reason investors would do well to capitalize on the drop in ASML stock following its latest earnings report, since it could bounce back and soar higher in the long run due to catalysts I’ve discussed.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends ASML. The Motley Idiot has a disclosure policy.
Where Will ASML Holding Stock Be in 5 Years? was originally published by The Motley Idiot