ASML Holding NV, Europe’s most valuable technology company, is experiencing a remarkable surge in its stock value, reaching a record high this week. The company is set for its best week in over a year, with a remarkable 16% gain following robust earnings that underline the strong demand for its cutting-edge machines, considered a barometer for the semiconductor industry.
AI-driven demand ignites ASML’s rally
ASML’s impressive performance is attributed to a swift return in orders, particularly in the high bandwidth memory business, fueled by the burgeoning demand for artificial intelligence (AI). Analysts highlight that the unexpected pace of orders resurgence is directly linked to the influence of AI, showcasing its impact on ASML’s bottom line.
The semiconductor industry’s rebound, driven by increased spending commitments from memory chipmakers, has contributed to ASML’s bookings reaching a record high in the fourth quarter. The resurgence is further supported by a recovery in demand for chips used in smartphones and computers, amplifying the need for high-performance memory chips crucial for realizing the full potential of AI.
ASML’s integral role in AI infrastructure
ASML’s machines, particularly the extreme ultraviolet (EUV) lithography systems, emerge as a fundamental building block for modern chip manufacturing. The urgency for chipmakers to secure these systems is heightened by the demand for high-performance memory chips, identified as a bottleneck in achieving optimal AI capabilities, according to ASML CEO Peter Wennink.
The unexpected surge in demand for ASML’s machines, driven by the escalating need for AI infrastructure, underscores the integral role the company plays in advancing AI technologies. Specialized chips for AI systems, such as those produced by Nvidia Corp. using ASML’s machines, continue to dominate the field, further emphasizing ASML’s significance in the AI ecosystem.
ASML navigates industry dynamics
While ASML faced a slowdown in orders from major customers in 2023, including Taiwan Semiconductor Manufacturing Co., the current rally signals a turnaround. The revival is part of a larger race among major chipmakers to produce 2-nanometer chips, the next-generation technology poised to enhance the speed of AI algorithms. Additionally, ASML’s machines are crucial for upcoming chipmaking facilities, including TSMC’s facility in Arizona, Intel’s factory in Ohio, and Samsung Electronics’ plant in Texas, all set to become operational next year.
Despite the current strong performance, concerns linger regarding Chinese chipmakers, who front-loaded demand for lithography tools ahead of export restrictions. Analysts suggest a potential dip in sales to China this year, even though demand from the country remains robust.
ASML’s future outlook and market position
While ASML’s shares may seem expensive on a one-year view, trading at 40 times next year’s earnings, analysts believe the ratio would normalize when considering 2025 earnings. The company projects “very significant” growth in 2025, contributing to a more favorable valuation. ASML’s current valuation, when compared to key AI enablers, is deemed reasonable based on a ratio that factors in the next three years of earnings growth.
As 2024 unfolds, ASML anticipates a transition year with limited growth. While positive signs in the chip industry are noted, the pace and shape of the recovery remain uncertain. Industry observers emphasize the market’s forward-looking nature, expecting it to focus on the promising developments anticipated in the next 18 months.
In a sector-wide context, ASML’s shares experienced a minor decline on Friday, attributed to broader market trends following Intel Corp.’s disappointing forecast. Nevertheless, market experts reiterate their confidence in ASML’s long-term prospects, emphasizing the company’s pivotal role in shaping the future of AI and semiconductor technologies.
ASML’s resurgence amidst AI surge
ASML Holding NV’s current record-setting performance underscores its pivotal position in the semiconductor industry, particularly in the context of the burgeoning demand for artificial intelligence infrastructure. The unexpected surge in orders and robust earnings reflect the industry’s recognition of ASML’s integral role in advancing chip manufacturing technologies essential for realizing the full potential of AI. As the race for next-generation chip technologies intensifies, ASML’s resurgence positions it as a key player in shaping the future of the semiconductor landscape.
