The Monopoly
As the source of all things AI and related, ASML is (and has been for the past decade) the monopoly for EUV lithography machines that power the most advanced GPUs from Nvidia and others. There’s no other manufacturer that can do this at scale.
Around October 2024, on their earnings call, they disappointed the market with a 10-15% lower than forecast revenue for 2025-2026, as one of their customers (very likely Intel) did not place orders for a large order of EUV machines as expected. Intel’s troubles are well known and this order is unlikely to come back. They also feared export controls to China and/or weakness in Chinese demand after 3-4 years of rapid growth.
I bought and recommended buying on 10/27/2024 at $690, with the following comments
Sure it could stay sluggish, range-bound, or fall till there’s some improvement in bookings, export controls to China, etc. Perhaps, that may not even happen for a while.
I think that’s an acceptable risk, now I’m getting a monopoly at a 37% drop from its 52-week high of $1,110, still growing revenue at 12% and EPS at 22%, selling for 8x sales and 25x earnings.
With TSM’s results, we saw how strong AI semiconductor demand still is and there was absolutely no let-up in their guidance.
A monopoly for AI chip production – an essential cog, without which AI is not possible – is definitely worth the risk
Fast Forward to the next quarter, the dynamic is much better and the price hasn’t shot beyond affordable.
Bottom line: A must-have, it’s always going to be priced at a premium given its monopoly status and the strength of the AI market, so returns are likely not going to be like a fast grower tech but I’m confident of getting 14-16% annualized return in the next 5-10 years.
ASML’s Q4-2024 results on 01/29/2025 were excellent:
ASML beats expectations as bookings soared.
The EUV, machines leader grew Q4 revenues 28% YoYr to €9.26B, and 24% QoQ, beating estimates.
Bookings: ASML’s Q4 bookings came in huge at €7.09B, way ahead of estimates of €3.53B., with net new adds of €3B.
On the earnings call, CEO Christophe Fouquet had this to say about AI and sales to China:
AI is the clear driver. I think we started to see that last year. In fact, at this point, we really believe that AI is creating a shift in the market and we have seen customers benefiting from it very strongly. Others maybe a bit less.
We had a lot of discussion about China in 2023-2024 because our revenue in China was extremely high. We have explained that this was caused by the fact that we are still working on some backlog created in 2022, when our capacity was not big enough to fulfil the whole market. 2025 will be a year where we see China going back to a more normal ratio in our business. We are going to see numbers people used to see before 2023.
USA led sales with with 28% share in the fourth quarter of 2024, edging China’s 27% of about €7.12Bn
Challenges remain as the AI arms race gets hotter:
ASML has not been able to sell its EUV machines to China because of U.S.-led export curbs to restrict China from getting advanced lithography equipment to manufacture cutting-edge chips like the H100s from Nvidia, or the new generation Blackwells.
From 2025, ASML will provide a backlog of orders on an annual basis instead of bookings to more accurately reflect its business.
Guidance: 2025 total net sales remain the same, between €30B and €35B. Q1-2025 is slightly higher with total net sales to be between €7.5B and €8.0B versus consensus of €7.24B.
ASML remains an excellent opportunity and I plan to add it on declines.
