(Bloomberg) — After a volatile summer, ASML Holding NV investors are hoping that its earnings report will underline the chip equipment maker’s strong credentials as an artificial intelligence trade with further to run.
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Shares in Europe’s most valuable technology company have fallen about 20% since a July high, hurt by the prospect of more severe US restrictions on its business in China as well as a broader rotation out of the sector this summer. Those factors overshadowed estimate-beating orders for ASML’s machines and ended an AI-fueled rally that had seen the shares almost double in value since the start of 2023.
“We are expecting healthy orders,” Jefferies analyst Janardan Menon said. “We think TSMC orders will be higher and China will be reasonably stable.” He expects bookings to come in above the €5.57 billion ($6.1 billion) figure reported last quarter. The company is due to report third-quarter results before the European market open on Wednesday.
“If they come in with those kind of orders, I think the stock should do okay,” Menon added.
A boost would be welcome, with the shares trading at about 30 times forward earnings — lower than their five-year average and well below AI-driven stocks like Nvidia Corp. at 37 times. Still, they’re trading higher than a group of other chip equipment makers in data compiled by Bloomberg. ASML, which counts Taiwan Semiconductor Manufacturing Co. and Intel Corp. among its biggest customers, has a monopoly on making the machines that produce the most advanced chips.
Orders from China will be a particular focus. The stock slumped in July after Bloomberg reported that the US was considering using the most severe trade restrictions available if the Netherlands resisted demands to limit ASML’s ability to service restricted equipment that’s already in China. The Dutch government subsequently planned to limit ASML’s ability to repair and maintain its top-of-the-line gear in the country, Bloomberg reported.
So far, export controls have provided a boost to ASML’s orders from China, which has been buying up unrestricted older kit to make more mature types of semiconductors. The country has accounted for almost half of ASML’s revenue in recent quarters, though some analysts expect this to start to come down, pressuring the stock in the future.
The company could lose nearly a quarter of its sales in China next year, and 45% of its overall revenue generated in the country is at risk from further restrictions, according to UBS analyst Francois-Xavier Bouvignies. While he expects earnings to be a short-term positive catalyst, China issues are a long-term overhang on the shares. Bouvignies recently downgraded ASML, saying that the earnings growth potential from AI is overhyped.
Still, with the US election looming, geopolitics have taken a backseat while investors await more information on the next administration’s plans. And there are some signs that the AI boom for the semiconductor sector is still going strong. ASML customer TSMC recently posted better-than-expected revenue, while shares in other AI-related stocks like Nvidia have been bouncing back after summer slumps.
For ASML, options data is now indicating an implied one-day move — in either direction — of about 5.5% after the results.
Wall Street is generally still positive, with the vast majority of analysts tracked by Bloomberg rating the stock a buy, and the average price target implying about 24% upside over the next 12 months, according to data compiled by Bloomberg.
Aside from the results, ASML’s investor day in November will also be a chance for the company to reassure investors about its orders and position in China.
Jefferies’ Menon expects the company to increase its guidance at the investor day, noting that while bears have been talking about delayed orders from Intel, “we have not heard of any pushout from any company anywhere in the world.”
ASML’s current long-term guidance is for 2025 sales of between €30 billion and €40 billion, and for 2030 revenue in the €44 billion to €60 billion range.
Citi analyst Andrew Gardiner is also expecting a boost to the shares, with ASML likely to reiterate its confidence for 2025, underpinned by the long-term opportunity from AI.
“Investor sentiment soured over the summer, both on the 2025 outlook and demand beyond,” he wrote. Results and the investor day are likely “to be positive catalysts.”
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Earnings Due Wednesday
–With assistance from Subrat Patnaik.
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