Shares of memory leader Micron (NASDAQ:MU), Applied materials (NASDAQ: AMAT)And KLA company (NASDAQ: KLAC) fell 4.3%, 10.9% and 15.5%, respectively, as of 3:28 PM ET on Tuesday.
Semiconductor stocks are largely sold off across the board today, following equipment leaders ASML Holdings (NASDAQ: ASML) accidentally leaked third quarter results and guidance, which were due to be published tomorrow.
The results and expectations were very disappointing, creating fear throughout the sector.
ASML disappoints about a “slower than expected” recovery
In the leaked press release, ASML showed revenue growth of 11.2% and earnings per share (EPS) growth of 9.1%, which are by no means terrible growth numbers, with revenue exceeding the company’s expectations last quarter.
More worrying, however, was the booking figure and 2025 outlook, which are also mentioned in the press release. Net bookings, which reflect revenue plus or minus the change in order book, were only 2.6 billion euros (~$2.8 billion), well below expectations of 5.39 billion euros (~$5.87 billion).
Additionally, management provided preliminary 2025 revenue guidance of between 30 billion and 35 billion euros (~$33 billion to $38 billion). While this still indicates growth in the mid-teens above expected 2024 figures of 28 billion euros (~$30 billion), it was lower than the 36.3 billion euros (~39.5 billion dollars) expected analysts had expected.
Management noted in the press release:
While there is still strong development and upside potential in AI, other market segments are taking longer to recover. It now appears that the recovery is more gradual than previously expected. This is expected to continue into 2025, causing caution among customers.
ASML is probably referring to Intelwhich has seen lower demand in the short term, and Samsung, which is facing operational issues and carrying out major expansions. ASML management also noted limited capacity expansions for DRAM memory suppliers, as most convert unused non-artificial intelligence (AI) memory equipment to HBM and DDR-5 for AI production lines.
The semiconductor investment industry is closely interconnected. So if a major factory is displaced, not only will ASML see slower growth, but so will Applied Materials’ etching and deposition equipment and KLA Corporation’s metrology and inspection equipment. So it’s no surprise that each of these shares is being sold to ASML for a similar amount today.
Micron has also fallen as ASML has indicated weaker end demand in non-AI markets. However, it could also be positive for Micron that memory rivals are scaling back their investments in memory capacity. Unlike advanced logic chips, the price of memory can fluctuate widely based on supply and demand. So the discipline to pull back investments could be a good thing for memory prices. That’s probably why Micron stock is holding up better than the others.
The sell-off could be a good opportunity
This sell-off could be an opportunity for chip investors, as it is highly likely that the recovery in non-AI markets will happen at some point, even if a full recovery does not happen as quickly as some predict. After all, the midpoint of ASML’s expectations still points to 16% growth next year. And implementing large-scale construction projects from 2025 to 2026 should lead to more sustainable growth after 2025.
It appears that by 2024, corporate budgets will be dominated by expensive AI expenses, crowding out non-AI server and PC innovations. However, this outdated equipment will eventually need to be updated, especially as support for Windows 10 will be phased out in October 2025. Furthermore, as more AI devices come to market, that should be a boon for chip content across all devices on PCs. , smartphones and car markets that are still lagging today.
So for investors with a long-term view, this sell-off based on the medium-term outlook could be an opportunity to pick up high-quality semiconductor names like these three in the long term.
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Billy Duberstein and/or his clients have positions in ASML, Applied Materials, Intel, KLA and Micron Technology. The Motley Fool holds positions in and recommends ASML and Applied Materials. The Motley Fool recommends Intel and recommends the following options: Short November 2024 $24 Calls on Intel. The Motley Fool has a disclosure policy.
Why Semiconductor Stocks Micron, Applied Materials and KLA Corporation Plunged Today was originally published by The Motley Fool
