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In recent years, the demand for artificial intelligence (AI) chips has skyrocketed, driven by major tech firms, startups, and governments vying for cutting-edge technology to power AI models and applications. As AI continues to gain traction, growth forecasts for AI applications are becoming increasingly ambitious, propelling a sharp rally in AI stocks.
ASML Holdings N.V. (ASML) holds a unique position in the market as the exclusive provider of high-end lithography systems, crucial for producing high-end chips for Nvidia Corporation (NVDA), Advanced Micro Devices, Inc. (AMD), and other leading chipmakers. ASML stock was steadily climbing this year, but hit a bump when the company released its Q1 earnings results on Apr. 17, prompting investor concerns over soft spending in the semiconductor equipment market.
With ASML stock trading 13.7% below its 52-week high of $1,056.34, set on March 7, does this dip represent a buying opportunity? Let's have a closer look.
About ASML Holdings Stock
Founded in 1984, ASML Holdings N.V. (ASML), headquartered in the Netherlands, develops, produces, markets, sells, and services advanced semiconductor equipment systems for chipmakers. It offers lithography, metrology, and inspection systems – an area of the semiconductor market for which it has a virtual monopoly. Its market cap currently stands at $361.9 billion.
Shares of ASML Holdings have surged 40.8% over the past 52 weeks, outperforming the S&P 500 Index’s ($SPX) 26.6% gains over this time frame. Even accounting for the pullback after its poorly received Q1 earnings results, ASML stock is up 20.5% on a YTD basis, outshining the SPX’s returns of 9.5% over the same period.
Late last month, the Dutch semiconductor equipment giant announced plans to raise its dividend payments. ASML’s board of directors had declared a final dividend payment of €1.75 per ordinary share. The company’s annualized dividend of $5.57 translates to a 0.60% dividend yield. Plus, with a conservative payout ratio of 28.4%, ASML retains flexibility for growth initiatives and potential dividend increases.
The company also announced a share buyback plan to repurchase its stock until October 24, 2025, acquiring shares at a price ranging from nominal value to 110% of the market price.
Priced at 45.58 times forward earnings and 12.09 times sales, ASML trades at a premium relative to its peers like Applied Materials (AMAT). However, its price/earnings to growth ratio of 2.28x is lower than Applied Materials, which trades at 3.08x.
ASML’s Mixed Q1 Earnings Results
Shares of ASML took a nosedive on April 17 after the company turned in disappointing Q1 earnings results. Its net sales fell 21.6% annually to €5.3 billion, missing Wall Street’s estimates. Its profit of €3.11 per share also declined 37.2% annually, but beat analysts’ projections by about 19%.
ASML's net bookings for its machinery, a closely monitored metric, amounted to €3.6 billion, marking a 4% decrease year over year and a nearly two-thirds plunge compared to the December quarter. Additionally, the number of new lithography systems sold also saw a significant decline.
For the full year, the company anticipates revenue to remain flat compared to 2023 but expects a stronger second half, aligning with the industry's ongoing recovery. ASML’s outgoing President and CEO, Peter Wennink, said, “We see 2024 as a transition year with continued investments in both capacity ramp and technology, to be ready for the turn in the cycle."
ASML's equipment is sought after by major chip giants like Taiwan Semiconductor Manufacturing Co. (TSM), Samsung, and Intel Corporation (INTC). These companies are expanding production in the U.S., supported by funding from the CHIPS Act, with the new construction expected to support demand for ASML’s specialty equipment.
Furthermore, ASML is so far navigating export restrictions to China with resilience. Previously, it forecasted export restrictions could impact 10% to 15% of China sales this year. Amid U.S.-led pressure on exports of advanced chipmaking equipment, Q1 China sales surged to 49% of system sales, up from 39% in Q4 2023, exceeding earlier forecasts.
Analysts tracking ASML Holdings predict its EPS to decline 6.9% to $20.04 in fiscal 2024, and then grow 52.3% to $30.52 in fiscal 2025.
What Do Analysts Expect for ASML Holdings Stock?
In a note following ASML’s Q1 earnings results, Jefferies analysts stood by their bullish outlook on ASML, maintaining a "Buy" rating and dubbing it a "top pick." They said any post-earnings dip in the share price could be a buying opportunity before anticipated sales growth later this year lifts the stock again.
Moreover, Argus analyst Jim Kelleher reiterated a "Buy" rating on ASML with a $1,000 price target, suggesting 9.9% upside potential from the current price levels. While Kelleher remains cautious for the year, he is optimistic about ASML's future, citing its unparalleled expertise in EUV lithography, which is expected to drive significant growth in 2025 amid robust demand for AI-ready chips.
Overall, ASML has a consensus “Strong Buy” rating. Of the 18 analysts covering the stock, 15 advise a “Strong Buy,” and the remaining three give a “Hold.”
The average analyst price target for ASML Holdingss is $1,081.86, indicating a potential upside of 18.9%. The Street-high target price of $1,172 suggests the stock could rally as much as 28.8%.
On the date of publication, Sristi Suman Jayaswal 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.
