Shares of ASML Holding(NASDAQ: ASML) slipped after the company's net bookings, or orders, came in below expectations, and it warned that tariffs were creating uncertainty. The stock has fallen about 30% over the past year, as of this writing, largely due to concerns related to Chinese trade restrictions and, more recently, the impact of tariffs.
ASML makes equipment that semiconductor foundries use to manufacture chips. The Dutch company has a virtual monopoly on extreme ultraviolet (EUV) lithography, which is a manufacturing process for creating advanced chips. Chipmakers such as Taiwan Semiconductor Manufacturing rely on ASML's EUV lithography machines to produce advanced chips, such as Nvidia's graphic processing units (GPUs).
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The company has also introduced a new technology called a high numerical aperture extreme ultraviolet lithography system, or High NA EUV, which will be critical in helping shrink chip sizes further. While some customers have balked at the machine's high price, ASML shipped its fifth High NA EUV system in the first quarter, and it now has machines at the three largest semiconductor contract manufacturers.
Orders fall below expectations
After ASML reported strong orders to close out 2024, its Q1 bookings of 3.9 billion euros ($4.5 billion) fell short of analyst expectations for orders of 4.9 billion euros ($5.6 billion). Only 1.2 billion euros ($1.4 billion) of the orders were for EUV machines. Notably, quarterly revenue and orders can be lumpy when dealing with the sale of large, expensive semiconductor manufacturing equipment.
Revenue for the quarter soared 45% to 7.7 billion euros ($8.8 billion) and came in between the company's guidance range of 7.5 billion to 8 billion euros ($8.5 billion to $9.1 billion). Its equipment sales rose nearly 45% year over year to 5.7 billion euros ($6.5 billion), while its service revenue climbed 54% to 2 billion euros ($2.3 billion). During the quarter, the company sold 73 new lithography systems and four used systems compared to 66 new and four used systems a year ago.
The company said after speaking with customers that it still expects both 2025 and 2026 to be growth years and that artificial intelligence (AI) continues to be the biggest growth driver of the semiconductor industry. Customers like Taiwan Semiconductor and Intel are still looking to aggressively expand capacity and build new fabs, which should lead to growth for ASML.
However, it also noted that tariffs have created uncertainty. It said tariffs can impact it directly in several ways, including with system sales and upgrades, increased import costs of materials to its U.S. manufacturing facilities, and for parts to field operations, as well as from parts it exports from the U.S. to other countries. It said the indirect impact on its business is more complex and difficult to determine at this time.
That said, ASML maintained its full-year guidance for revenue of 30 billion to 35 billion euros ($34.1 billion to $39.8 billion), with a gross margin of 51% to 53%. For its second quarter, the company forecast revenue to range from 7.2 billion to 7.7 billion euros ($8.2 billion to $8.8 billion) with a 50% to 53% gross margin.
Image source: Getty Images.
Should investors buy ASML stock on the dip?
ASML's results can be unpredictable, and tariffs combined with its exposure to China create an additional layer of uncertainty. Despite an earlier surge in demand, China still accounted for 27% of its shipments in Q1. The company cannot sell its EUV technology to China, and there are concerns that all sales to the country could eventually be prohibited. This all adds risk.
However, ASML has a virtual monopoly on EUV technology, and its new High NA EUV technology will eventually be needed to shrink chip sizes even further. That makes ASML's position in the semiconductor value chain irreplaceable. With chip demand continuing to rise, led by AI, the company remains well-positioned for the long term.
Following the market sell-off, ASML shares trade at a forward price-to-earnings multiple of 24 based on 2025 analyst estimates. That valuation looks like a bargain for a company with basically no competition for EUV lithography, which is vital to the entire semiconductor industry.
As such, investors can start building positions at the stock's current levels while looking to add more shares on any dips. The market will likely remain volatile in the short run, but ASML is a stock you want to own for the long haul.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.
