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Shares of semiconductor giant ASML (ASML) declined sharply last week after the company reported a tepid forecast during its Q3 earnings release, which was unexpectedly published a day early during trading hours. Today, ASML stock trades 35% below all-time highs, valuing the company at a market cap of $285.3 billion.
Despite the recent pullback, the Netherlands-based chip maker has returned 680% to shareholders in the past decade. If we adjust for dividend reinvestments, cumulative returns are closer to 760%. So, let’s see if the ongoing slump offers investors a buying opportunity on ASML stock.
How Did ASML Perform in Q3 of 2024?
ASML develops, produces, markets, sells, and services semiconductor equipment systems for memory and logic chipmakers. Its products are used to manufacture a range of semiconductor nodes and technologies, and with a near-monopoly for its specialized equipment, ASML is an integral part of the supply chain.
ASML stock fell by 16% in a single trading session last Tuesday, primarily due to a disappointing sales forecast. The plunge caused the company to shed almost $53 billion in market cap, and sparked industry-wide concerns about semiconductor demand.
ASML estimated net sales between $32.6 billion and $38.1 billion in 2025, at the lower half of its previous forecast. Its net bookings for Q3 of 2024 totaled $2.83 billion, more than 50% below consensus estimates. The company explained that while AI demand remains strong, other market segments are taking longer to recover, leading to its less-than-impressive net bookings forecasts.
China is a Key Concern for ASML
The lower revenue forecast is largely tied to the export restrictions on advanced semiconductor technology imposed by the governments of the U.S. and the Netherlands. In September, the U.S. government announced new export controls on key technologies, including advanced chipmaking products. Elsewhere, the Netherlands rolled out plans to control ASML’s machine exports to China.
ASML’s ultraviolet lithography machines are used by some of the largest chip manufacturers in the world to produce AI chips. Now, with the export restrictions, ASML expects China to account for 20% of its total revenue in 2025. In Q2 of 2024, China accounted for 49% of its total sales; in 2023, it was around 29%.
In the first six months of 2024, several chip makers in China stockpiled less advanced ASML machines to navigate the export restrictions, resulting in higher sales. Bank of America analysts had initially forecast sales originating from China to fall by 3% year over year in 2025. However, the investment bank now suggests the decline might be much closer to 50%.
Cantor Fitzgerald Removes ASML From its Top Picks
Following ASML’s Q3 earnings results, Cantor Fitzgerald removed the stock from its “top picks.” Cantor Fitzgerald analyst C.J. Muse explained that ASML shares might underperform in the near term before it regains investors' confidence. Muse, however, maintained an “overweight” rating on ASML stock, noting that shares are “near trough-like levels.”
Out of the 20 analysts covering ASML stock, 16 recommend “strong buy” and four recommend “hold,” for an overall “strong buy” consensus.
Wall Street expects ASML to increase adjusted earnings per share to $28 in 2025, up from $20.70 in 2024. Priced at 25.5 times forward earnings, ASML stock is reasonably valued compared to other chip makers.
The average 12-month target price for the tech stock is $1,023.62, indicating an upside potential of 44% from current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
