ASML Holding N.V. ASML, the world’s leading supplier of semiconductor manufacturing equipment, has seen its stock price tumble 25.1% over the past year, significantly underperforming the broader market.
In comparison, the Zacks Computer and Technology sector and the S&P 500 gained 4.8% and 8.6%, respectively, during the same period. It has also underperformed semiconductor heavyweights, including NVIDIA NVDA, Broadcom AVGO and Marvell Technology MRVL.
One-Year Price Return Performance
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This underperformance, coupled with near-term challenges, raises concerns about whether investors should exit or remain patient. However, despite short-term headwinds, ASML’s dominant market position, technological leadership, and strong financials make a compelling case for holding the stock.
Near-Term Challenges Pressuring ASML’s Stock
ASML stock’s underperformance is driven by both macroeconomic pressures and company-specific challenges. The broader tech sector sell-off, triggered by escalating trade tensions and rising fears of economic slowdown, has weighed on semiconductor stocks.
On the company level, weakening semiconductor demand has impacted ASML’s order intake. With key customers reducing their capital expenditures (capex), bookings for ASML’s high-value lithography systems have slowed. As a result, ASML’s near-term revenue growth is facing pressure, leading to investor caution.
Another key challenge is geopolitical risk, which poses a threat to ASML’s sales expansion. The Dutch government’s export restrictions on ASML’s advanced lithography tools to China, driven by U.S. pressure, has hampered growth prospects in one of its largest markets. In 2024, China accounted for 41% of ASML’s lithography shipments, making it a vital revenue source. Further trade restrictions or retaliatory measures could significantly reduce ASML’s sales pipeline.
Additionally, valuation concerns have put further downward pressure on ASML’s stock. Despite the decline in share price over the past year, ASML still trades at a premium with a forward P/E of 27.92 compared with the Zacks Computer and Technology sector’s average of 23.92. This relatively high valuation, coupled with near-term growth uncertainties, has made investors cautious.
Despite short-term volatility, ASML’s technological leadership in lithography equipment makes it indispensable to the semiconductor industry. The company maintains a near-monopoly on extreme ultraviolet (EUV) lithography, which is essential for producing advanced chips at 3nm and below. Its EUV systems are crucial for leading chipmakers such as TSMC, Samsung, and Intel, positioning ASML as a key enabler of cutting-edge semiconductor manufacturing.
Looking ahead, ASML’s High-NA EUV technology represents the next frontier in chip manufacturing. Designed for sub-2nm nodes, these advanced systems will be critical for the industry’s future. While the adoption of High-NA EUV has been slower than expected, the long-term potential remains enormous. As chipmakers ramp up production of smaller, more powerful chips, ASML’s High-NA EUV tools will play a pivotal role, driving sustained demand.
The company’s technological superiority ensures high barriers to entry, giving it a competitive moat. With EUV technology being essential for advanced semiconductor fabrication, ASML’s dominance remains intact, supporting its long-term growth outlook.
ASML’s fourth-quarter 2024 financial results demonstrated its resilience. The company posted €9.26 billion in net sales, marking a 24% year-over-year increase. Net income surged 30% to €2.69 billion, while earnings per share (EPS) grew 30% to €6.85, highlighting the company’s operational efficiency.
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The gross margin expanded 90 basis points year over year to 51.7%, driven by strong cost management and improved productivity in its advanced lithography systems. This margin expansion reflects ASML’s ability to maintain profitability even in a challenging macro environment.
ASML’s 2025 guidance also signals confidence in its future growth. The company expects 15% revenue growth for the year, driven by rising demand for both EUV and DUV (deep ultraviolet) lithography systems. Additionally, ASML forecasts a 150-basis-point margin expansion in the first quarter and a 70-basis-point improvement for 2025, indicating higher profitability ahead.
ASML Holding N.V. Price, Consensus and EPS Surprise
One of ASML’s most significant strengths is its record-high order backlog of €36 billion, providing strong revenue visibility. In the fourth quarter of 2024, the company booked €7.1 billion in new orders, comprising €3 billion from EUV systems and €4.1 billion from DUV machines.
This robust backlog highlights the sustained demand for ASML’s lithography tools, driven by the AI boom, high-performance computing demand, and next-generation chip production. As semiconductor manufacturers ramp up 2nm and sub-2nm production capabilities, ASML’s advanced EUV systems will remain critical, securing long-term revenue streams.
AI-Driven Semiconductor Demand to Fuel ASML Growth
ASML is well-positioned to capitalize on the AI revolution, which is driving massive demand for advanced semiconductors. With AI workloads requiring cutting-edge GPUs, high-bandwidth memory, and AI accelerators, the demand for smaller and more powerful chips is rising. This trend plays directly into ASML’s hands, as its EUV and High-NA EUV machines are vital for manufacturing these advanced chips.
As cloud providers, data centers, and tech giants expand their AI infrastructure, ASML’s lithography tools will be in greater demand. This AI-driven semiconductor expansion ensures long-term growth tailwinds for ASML, making it a compelling hold.
Conclusion: Hold ASML Stock for Now
While ASML faces near-term headwinds from geopolitical risks and softer semiconductor demand, its technological leadership, robust financials, and massive order backlog offer strong long-term growth potential.
The company’s dominance in EUV and High-NA EUV technology, coupled with robust bookings and solid revenue visibility, makes it well-positioned for future growth. With rising demand for advanced nodes, AI chips, and high-bandwidth memory, ASML’s lithography tools will remain mission-critical, making the stock worth holding onto.
ASML carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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