ASML Holding(NASDAQ: ASML) is one of the most important companies in the semiconductor industry as its equipment plays a mission-critical role in helping foundries and chipmakers in manufacturing chips, but the stock’s performance so far this year has been underwhelming.
While the PHLX Semiconductor Sector index has recorded solid gains of almost 16% this year (as of this writing), shares of ASML are down 14%. The stock fell big time last month following the release of its third-quarter earnings 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 Nov. 14, and it looks like management’s comments are having a positive impact on the company’s stock market fortunes. More specifically, ASML stock rose almost 3% following its Investor Day. Let’s see why that was the case.
When ASML released its Q3 results last month, it guided for 2025 revenue of 30 billion euros to 35 billion euros. The company trimmed the higher end of its earlier guidance, which called for 2025 revenue of 30 billion euros to 40 billion euros, driven by slower recovery in certain semiconductor end markets such as smartphones and personal computers (PCs).
The Dutch semiconductor giant also pointed out that limited-capacity additions by memory manufacturers are also going to impact its growth next year. However, ASML did point out that AI will remain a key growth driver despite the headwinds in other markets. According to CEO Christophe Fouquet:
With regard to market conditions, while we continue to view AI as a key driver of the industry recovery with potential upside, we see other segments recovering more slowly than anticipated. The recovery will extend well into 2025, which is leading to customer cautiousness and some pushouts in their investments.
ASML management spoke on the same lines during its investor day meeting, stating that “the emergence of AI creates a significant opportunity for the semiconductor industry,” and the company could “deliver significant revenue and profitability growth” thanks to the proliferation 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 this guidance a couple of years ago.
So, ASML’s forecast indicates that the company’s long-term growth forecast is still intact in spite of a short-term hiccup next year. Management points out that the booming demand for AI servers is going to be a key growth driver for the company. More specifically, ASML management estimates that sales of AI servers could increase at an annual rate of 18% from 2025 to 2030, generating $350 billion in revenue at the end of the forecast period.
More importantly, sales of smartphones and PCs are expected to improve as well in the long run. ASML estimates that the smartphone market could clock an annual growth rate of 5% through 2030, while the PC market could witness a 4% annual growth over the same period.
All these factors are expected to lead to robust growth in wafer demand in the future. More specifically, ASML expects annual demand to grow by 780,000 wafer starts per month (WSPM) every year from 2025 to 2030. WSPM refers to the output of a semiconductor plant, so the increase in this capacity means that the demand for ASML’s machines should remain robust going forward.
As such, it won’t be surprising to see the company eventually achieve its 2030 targets. If ASML can hit the midpoint of its 2030 guidance and achieves 52 billion euros in revenue, its top line would nearly double from this year’s estimated figure of 28 billion euros. That would translate into a compound annual growth rate of almost 11%.
Moreover, the midpoint of the gross margin range of 56% to 60% in 2030 would also be a nice improvement over the 52% figure it is forecasting for 2025. All this indicates that ASML is on track to clock healthy top- and bottom-line growth going forward thanks to the secular growth of the semiconductor market, which it believes could cross $1.05 trillion in revenue in 2030 from $679 billion in 2025.
ASML’s poor stock market returns in 2024 mean that investors can get their hands on this semiconductor stock at a relatively attractive valuation. The stock is now trading at 34 times trailing earnings, a discount to its five-year average earnings multiple of 42.5. Also, the forward earnings multiple of 27 points toward an improvement in its bottom line, and the reading is lower than the tech-laden Nasdaq-100 index’s forward earnings multiple of 30.7.
So, savvy investors looking to add an AI stock to their portfolios can consider accumulating ASML given its sunny, long-term prospects. Of course, the stock’s performance can be affected by the short-term challenges in the semiconductor industry, but it is worth remembering that the company’s machines help make advanced chips that go into applications such as AI, which is 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.
