Multiple secular trends are happening to drive long-term growth for companies in the semiconductor sector. These trends include the rise of artificial intelligence (AI), expansion in edge computing and increasing adoption of electric vehicles. All of these involve semiconductor components.
This bodes well for the company once known as Advanced Semiconductor Materials Lithography, and now simply called ASML (ASML +8.50%). It's the world's dominant provider of lithography tools for the semiconductor industry. These tools are essential for creating the microchips used in all manner of computing devices, including AI systems.
Yet, ASML's stock price is down 6% in 2024 through Dec. 19. Does this mean now is a good time to pick up shares? Here's an analysis to answer that question.
NASDAQ: ASML
Key Data Points
Why ASML shares are down in 2024
ASML's share price plunged because its third-quarter earnings missed Wall Street expectations. It forecast full-year 2024 revenue to come in around 28 billion euros, which is only slightly ahead of the 27.6 billion euros it made last year.
However, in discussing 2024's outlook in Q3 2023, ASML management warned that "revenue-wise it's going to be similar we believe to 2023." This was due to macroeconomic factors, and geopolitical tensions, including new restrictions on semiconductor-related sales to China.
What added to investor disappointment was the company's management noting that industry recovery from macroeconomic conditions "is more gradual than previously expected," and would extend into 2025.
Consequently, ASML is forecasting 2025's full-year sales to come in between 30 billion to 35 billion euros. This is not the "very significant growth in 2025" that management had promised previously.
ASML's bright future
Even so, the fact is that ASML operates in a cyclical industry. Periods of decline are to be expected, but these are followed by an upswing. Over the long term, ASML sees substantial upside. The company estimates that by 2030, it can achieve annual sales of between 44 billion to 60 billion euros.
In fact, management believes that the semiconductor industry will hit $1 trillion in sales by 2030. That milestone may occur even sooner. According to the World Semiconductor Trade Statistics, the industry could see global semiconductor sales reach nearly $700 billion in 2025, up from $627 billion in 2024.
Another factor setting ASML up for success over the long haul is the need for more potent semiconductor chips in the future, particularly for AI.
For instance, to meet current AI demands, Nvidia produced a chip for its new Blackwell platform that contains more than 200 billion transistors, which the company claims is the world's most powerful chip. That's nothing compared to ASML's prediction of chips with one trillion transistors by 2030.
But to get there, customers must rely on ASML's lithography machines. Here, ASML holds a monopoly. It's the only supplier of extreme ultraviolet (EUV) lithography equipment, which is necessary to construct chips that can contain higher transistor density -- and, hence, superior computational power and speed -- without substantially increasing chip size.
So as customers require more potent semiconductors, ASML is poised to capture that demand. After all, it doesn't have competition.
To buy or not to buy ASML stock
Given its advantages and the direction the semiconductor industry is heading toward to support the various secular trends in motion today, ASML looks like a good investment for those with an eye toward the long term.
That said, is now the time to buy? A look at ASML's price-to-earnings (P/E) ratio, a widely used metric to assess stock valuation, tells you how much investors are willing to pay for a dollar's worth of earnings.
Data by YCharts.
Compared to earlier in 2024, the chart shows that ASML's P/E multiple is far more reasonable at the time of this writing. It's not at its lowest point, but looking out over the next several years, as AI and other secular trends expand, ASML holds plenty of upside potential to make it worth buying shares at this level.
While you wait for the stock to rebound, ASML will pay you a dividend with a respectable yield of about 1%, providing a source of passive income.
