In the ever-evolving landscape of artificial intelligence (AI), the quest for innovation and efficiency is relentless. Investment opportunities abound across various facets of the AI supply chain, ranging from data collection to data centers, and software applications to hardware development. Yet, at the heart of it all, lies a critical factor that powers the AI revolution: semiconductor technology.
In the realm of AI, only the most potent chips can handle the colossal data workloads efficiently. Crafting these high-performance chips is a complex endeavor, and it hinges on a specific and intricate process known as extreme ultraviolet (EUV) lithography. The machines responsible for EUV lithography are, without question, the linchpin in the AI supply chain, and one company reigns supreme in this domain—ASML.
ASML’s singular supremacy in EUV lithography
EUV lithography is the indispensable technology required to pattern the tiniest features on semiconductor chips. This intricate process empowers semiconductor foundry companies to densely pack more transistors onto a single chip, thereby enhancing its computational power and energy efficiency. The machines employed for EUV lithography are not merely sophisticated; they are colossal, with a size that rivals that of a bus. It is this intricate complexity that has enabled ASML to maintain an unrivaled monopoly in the field.
While ASML currently stands as the sole provider of this cutting-edge technology, the company is not resting on its laurels. It is actively advancing its EUV lithography capabilities with the development of the next-generation EUV machine. Anticipated to be capable of producing 2-nanometer (nm) or even smaller chips, these machines are slated to hit the market for research purposes in 2023, with full-scale production expected by 2025.
The crucial role of ASML in the AI ecosystem
ASML’s monopoly on EUV lithography is no mere coincidence; it’s a testament to the unparalleled complexity and uniqueness of their machines. Without ASML’s technological prowess, AI models would be compelled to operate on far less powerful chips. The ramifications of such a scenario would be significant, rendering the development and maintenance of AI infrastructure prohibitively expensive. In essence, ASML’s machines form the backbone of the AI supply chain, ensuring that AI technologies can continue to push the boundaries of what’s possible.
A glimpse into ASML’s financial standing
ASML’s financial performance underscores its significance in the AI supply chain. The costliness of its machines results in a somewhat uneven quarterly financial report, as just a few orders can substantially influence the company’s results. For instance, in the second quarter, ASML reported the sale of 107 new units and six used ones, totaling a staggering 5.6 billion euros. Furthermore, the company booked an additional 4.5 billion euros in future orders, indicating robust business prospects as the next generation of chip technology takes shape.
This impressive performance translated into substantial profits for ASML, as it transformed 6.9 billion euros in total revenue into a profit margin of 28%, culminating in 1.9 billion euros in profits. ASML has also demonstrated a commitment to shareholder value by offering a modest dividend with a current yield of 1% and regularly repurchasing its own stock. The company’s consistent and strong execution, coupled with its technological monopoly, has earned it a valuation premium.
ASML’s premium valuation
Trading at 32 times trailing earnings, ASML commands a valuation that surpasses its historical levels and stands as relatively expensive when compared to the broader market, which typically trades at around 25 times earnings. However, this premium valuation is not unwarranted. Given the AI-induced chip arms race and ASML’s track record of success, its premium valuation aligns with its strategic importance in the AI supply chain.
While ASML may not offer the eye-catching returns of other AI companies, it represents a dependable and stable investment. The inexorable rise of high-end chip technology in our daily lives positions ASML as an ideal candidate for long-term investors. As long as ASML continues to maintain its technological edge over competitors, which it has diligently upheld for an extended period, it remains a formidable choice for investors seeking market-beating returns.
ASML’s integral role in AI’s future
In the grand tapestry of artificial intelligence, ASML emerges as the indispensable thread, weaving together the intricate components of the AI supply chain. Its mastery of EUV lithography is the driving force behind the creation of the most potent chips, a necessity for the burgeoning AI ecosystem. Despite its premium valuation, ASML’s unwavering commitment to innovation, consistent performance, and strategic significance in the AI revolution make it a compelling investment opportunity.
As the world hurtles toward an AI-driven future, ASML stands not just as a company, but as an emblem of progress—a beacon illuminating the path towards the limitless possibilities that AI offers. Whether you are an investor or an AI enthusiast, ASML’s journey promises to be an intriguing one, shaping the very foundation of the technological world we inhabit.
