ASML Holding(NASDAQ: ASML) is one of the most important companies in the semiconductor industry because its equipment plays a crucial role in helping foundries and chipmakers produce chips, but the stock’s performance this year has been disappointing so far.
While the PHLX semiconductor sector The index has posted a solid gain of almost 16% this year (at the time of writing), ASML shares are down 14%. The stock fell sharply last month after the release of third-quarter earnings results, as management’s 2025 outlook turned out to be lower than what Wall Street was looking for.
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However, ASML held its Investor Day meeting on November 14 and it appears that management’s comments are having a positive impact on the company’s stock market performance. More specifically, ASML shares rose almost 3% after Investor Day. Let’s see why that was the case.
When ASML announced its Q3 results last month, it expected a turnover of 30 billion euros to 35 billion euros by 2025. The company has cut the top end of its previous guidance, which called for sales of 30 billion euros by 2025, to 40 billion euros, driven by a slower recovery in certain semiconductor end markets such as smartphones and personal computers (PCs).
The Dutch semiconductor giant also pointed out that limited capacity expansions by memory makers will also impact growth next year. However, ASML has pointed out that AI will remain an important growth driver, despite headwinds in other markets. According to CEO Christophe Fouquet:
In terms of market conditions, we still see AI as a key driver of the sector’s recovery with potential upside, but we see other segments recovering more slowly than expected. The recovery will continue well into 2025, leading to caution among customers and some reduction in their investments.
ASML management spoke along similar lines at its investor day meeting, stating that “the rise of AI creates a significant opportunity for the semiconductor industry” and that the company “could achieve significant revenue and profitability growth” thanks to the spread of this technology. As a result, ASML has reiterated its 2030 revenue guidance of 44 billion euros to 60 billion euros, along with a gross margin of 56% to 60%. The company had originally issued these guidelines a few years ago.
So ASML’s forecast indicates that the company’s long-term growth forecast is still intact, despite a short-term problem next year. Management points out that growing demand for AI servers will be a key growth driver for the company. More specifically, ASML management estimates that AI server sales could grow 18% annually between 2025 and 2030, generating $350 billion in revenue by the end of the forecast period.
More importantly, sales of smartphones and PCs are also expected to improve in the long term. ASML estimates that the smartphone market could achieve annual growth of 5% through 2030, while the PC market could experience annual growth of 4% over the same period.
All these factors are expected to lead to robust growth in waffle demand in the future. More specifically, ASML expects annual demand to grow by 780,000 wafer starts per month (WSPM) every year between 2025 and 2030. WSPM refers to the output of a semiconductor factory, so the increase in this capacity means that demand for ASML’s machines should continue. robustly moving forward.
It should come as no surprise that the company will ultimately achieve its 2030 targets. If ASML can reach the midpoint of its 2030 expectations and achieve sales of 52 billion euros, its revenue would almost double from this year’s estimated 28 billion euros. That would translate into a compound annual growth rate of almost 11%.
Additionally, the gross margin midpoint of 56% to 60% in 2030 would also be a nice improvement over the 52% it forecasts for 2025. All this suggests that ASML is on track to achieve healthy top and bottom growth in the future thanks to steady growth in the semiconductor market, which it estimates could exceed $1.05 trillion in sales by 2030, compared to $679 billion by 2025.
ASML’s poor stock market returns in 2024 ensure that investors can acquire this semiconductor share at a relatively attractive valuation. The stock now trades at 34 times trailing earnings, a discount to its five-year average earnings multiple of 42.5. Also, the forward earnings multiple of 27 indicates an improvement in operating results, and is lower than the technology-laden figures. Nasdaq-100 the index’s forward earnings multiple is 30.7.
So, savvy investors looking to add an AI stock to their portfolio may want to consider accumulating ASML given its sunny long-term outlook. Of course, the stock’s performance could be affected by the near-term challenges in the semiconductor industry, but it’s worth remembering that the company’s machines help make advanced chips used in applications like AI. That’s why it would be a smart idea. to keep the bigger picture in mind.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML. The Motley Fool has a disclosure policy.
Is it finally time to buy this beaten-down artificial intelligence (AI) stock? was originally published by The Motley Fool
