The demand for machines used to build computer chips is expected to increase due to the rise in demand for generative artificial intelligence. ASML, a Netherlands-based company, is the leading supplier of extreme ultraviolet lithography machines that are essential for manufacturing advanced chips. These machines are expensive and take time to build, with buyers facing a two-year wait once an order is placed. ASML’s second-quarter results for 2024 exceeded expectations, driven by the demand for AI chips. However, the company’s shares fell on concerns that export restrictions could impact revenue from China.
ASML’s stock had seen a 49% increase in 2024 as of July 16, but the company faced a drop in shares following the release of their second-quarter results. While net sales for the quarter were $6.8 billion, down 9.5% but exceeding expectations, the net profit was $1.45 billion, down 18.7% but more than expected. Despite a strong net booking of $5.2 billion, the net sales forecast for the third quarter fell short of analysts’ expectations. ASML remains optimistic about the future, particularly in the AI sector, which is driving growth in the industry.
ASML has been under pressure from the U.S. and the Netherlands to restrict exports of its latest EUV machines to China. These restrictions could potentially impact 10% to 15% of the company’s sales in China for the year, with 49% of their business coming from exporting older equipment to China in the second quarter of 2024. Analysts believe that despite these challenges, ASML’s stock is slightly undervalued, with prospects for EUV demand potentially picking up in 2025 and driving revenue growth.
Analysts expect strong demand for ASML’s machines from companies like TSMC and Samsung, particularly for building advanced chip parts that power machine learning and AI workloads. The industry anticipates a cyclical upturn in 2025, leading to the construction of new fabs globally that will utilize ASML’s systems. AI is expected to make up a growing share of ASML’s revenues in the future, with analysts projecting significant growth in this segment. ASML is preparing for increased demand and expansion in the AI market.
The upcoming U.S. presidential election could pose challenges for ASML, with potential export restrictions on equipment sales to China depending on the election outcome. President Joe Biden’s administration is considering implementing additional restrictions on ASML, while former President Donald Trump’s policies may impact Taiwan’s military protection from China. The emergence of a killer app for generative AI could be crucial for ASML’s future, as demand for GPUs and the need to invest in ASML’s machines may hinge on companies finding ways to make generative AI investments profitable.
Overall, ASML’s position as a leading supplier of EUV lithography machines puts them in a strong position to benefit from the increasing demand for advanced computer chips driven by generative artificial intelligence. Despite challenges such as export restrictions and geopolitical uncertainties, ASML remains optimistic about future growth prospects in AI and other market segments. The company’s strong performance in the second quarter of 2024, coupled with expectations of a cyclical upturn in the industry in 2025, bode well for ASML’s stock price and revenue growth potential.
