ASML stock has tumbled significantly. Is it time to buy the dip or should you proceed with caution?
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Imagine watching your investments drop by double digits overnight.
That’s the harsh reality many ASML investors faced when the stock plunged following soft guidance.
But here’s the burning question: Is this the perfect moment to buy the dip or should you brace for more downturns?
ASML, a vital player in the semiconductor equipment space, took a hit due to slowing demand and uncertainty in China.
However, when stocks fall, opportunities often rise.
In this newsletter, we’ll break down the key stats, figures, and insights you need to determine if now is the time to jump into ASML—and what might be in store for this tech giant in the long run.
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The Dip: Is China the Real Culprit?
The headlines are full of ASML’s struggles with China, but there’s more beneath the surface.
The company's Q3 results reveal some concerning trends, with new bookings falling to €2.6 billion ($2.8 billion)—a sharp 53% decline from the previous quarter.
Not only that, but Chinese companies made up a staggering 47% of ASML’s Q3 sales, a leap from 14% in 2022.
Why the sudden shift? China rushed to buy older lithography systems ahead of new export restrictions, which artificially inflated demand this year.
This "pull-forward" in demand has created a temporary boom, but experts predict China’s contribution will drop back to a mere 20% by 2025.
And while ASML doesn’t sell its cutting-edge EUV systems to China, this short-term boost in sales may mask deeper issues.
Is ASML too reliant on Chinese sales? That’s a big question for investors.
Despite these concerns, the company’s revenue for Q3 grew 12% year-over-year to €7.5 billion ($8.2 billion), exceeding expectations.
But with a soft outlook for 2025, some investors are left wondering whether ASML can maintain its growth in the face of global economic uncertainty.
Intel’s Struggles and ASML’s New Technology: A Risk or Reward?
ASML’s next big breakthrough lies in its high numerical aperture extreme ultraviolet lithography (High NA EUV) system, which is expected to revolutionize the semiconductor industry.
However, the reception so far has been mixed. Intel, the first to adopt this new technology, is facing significant challenges in its foundry business, which could hinder ASML’s growth prospects.
In Q3, Intel cut costs at its foundry unit, raising concerns about whether the much-hyped High NA EUV system will deliver as expected.
ASML sold 106 new lithography systems and 10 used systems in Q3, compared to 105 new and 7 used systems last year.
This slight uptick in sales is positive, but it’s the future demand that really matters. Will Intel’s struggles dampen enthusiasm for ASML’s new technology? Or will Taiwan Semiconductor Manufacturing (TSMC) step in to pick up the slack?
TSMC has voiced concerns about the cost of ASML’s new system, noting that advanced chips can still be made without it.
The market is watching closely to see whether ASML can turn this technological innovation into a major growth driver—or if it will face resistance from the very customers it hopes to serve.
Valuation: ASML at a Discount?
Let’s talk numbers. As of October 17, 2024, ASML stock is trading at $700.60, significantly below its 52-week high of $1,110.09.
This sharp decline puts the stock in what many analysts refer to as "discount territory."
At this level, ASML’s forward price-to-earnings ratio sits at around 22x 2025 earnings estimates, which is on the lower end of the spectrum for the company in recent years. For long-term investors, this lower valuation could signal a rare buying opportunity.
Despite the near-term challenges, such as reduced demand from China and soft guidance, ASML's underlying financials remain strong. Gross margins for Q3 came in at 51.14%, showing that the company still operates efficiently, even amid a tough semiconductor market.
Furthermore, ASML's forecast for 2025 sales is between €30 billion ($32.6 billion) and €35 billion ($38.1 billion), demonstrating potential growth, though at the lower end of prior expectations.
With the stock currently trading 36% below its 52-week high, investors looking for a world-class company at a reduced price may find ASML’s dip appealing.
However, as with any investment, it’s important to weigh both the opportunities and risks.
The current dip could be a golden opportunity to buy a leader in the semiconductor industry, but it also comes with the uncertainty tied to global market conditions, including ongoing trade restrictions and challenges in key markets like China and Intel's foundry business. Only time will tell if this is the bottom or if further headwinds await.
Conclusion: Should You Buy the Dip?
ASML’s stock plunge has left many investors nervous, but for savvy investors, it may just be a hidden gem waiting to shine again.
While the company faces short-term headwinds—particularly with its reliance on Chinese sales and Intel’s struggles—its long-term growth potential remains strong.
The semiconductor industry is notorious for its cyclical nature, and ASML’s “lumpiness” in sales is nothing new.
But with innovations like the High NA EUV system on the horizon, ASML could be positioned for a strong rebound in the coming years.
The stock’s current valuation offers a rare chance to invest in a market leader at a discounted price, but only if you have the stomach for volatility.
If you’re interested in learning more about this opportunity, stay informed, and make the most of market dips like this one—subscribe to our newsletter now.
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ChuWei
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