The past year has been a difficult one for ASML Holding(NASDAQ: ASML) investors. Shares of the semiconductor equipment-making giant have lost more than 36% of their value during this period, but it won't be surprising to see the Dutch company's fortunes changing for the better when it releases its first-quarter 2025 results on April 16.
ASML stock's struggle in the past year can be attributed to a combination of factors. Its weaker-than-expected performance in recent quarters, the overall negativity in the tech sector owing to the just ramped-up tariff war, and concerns about a potential slowdown in spending on artificial intelligence (AI) infrastructure are all headwinds.
However, ASML's upcoming results could put these concerns to rest and help the stock regain its mojo. Let's look at the reasons why.
ASML Holdings is on track to deliver a solid quarter
ASML expects revenue of 7.5 billion euros to 8 billion euros for the first quarter of 2025. That would translate into an impressive top-line year-over-year jump of 46% at the midpoint of its guidance range. Investors can also expect a sharp spike in the company's earnings as it is forecasting a jump of 1 to 2 percentage points in its gross margin.
Analysts are predicting a year-over-year jump of 85% in ASML's earnings for Q1 to 5.75 euros per share. Management remarked on the company's January 2025 earnings press release that "artificial intelligence is the key driver for growth in our industry." The company added that the growing adoption of AI applications is creating the need for more high-performance computing (HPC) and high-bandwidth memory (HBM) products.
These products are manufactured using advanced chip nodes, which is why ASML management forecasted an increase in demand for its products and services. ASML's extreme ultraviolet (EUV) machines are used for manufacturing these advanced logic and memory chips. Not surprisingly, the adoption of these EUV machines is picking up momentum.
Foundry giant Taiwan Semiconductor Manufacturing(NYSE: TSM), popularly known as TSMC, has been buying ASML's EUV lithography machines to manufacture advanced chips based on small process nodes that pack in more computing power and consume less energy. This explains why ASML saw a strong spike in new orders for its machines in the fourth quarter of 2024.
The company's quarterly bookings figure jumped nearly 2.7 times on a sequential basis to almost 7.1 billion euros. Around 42% of ASML's bookings were for its EUV machines, and there is a good chance that it could continue to receive robust orders for its advanced chipmaking equipment, as recent developments in the semiconductor industry indicate.
TSMC is one of ASML's key customers. The Dutch company got 15% of its revenue from selling equipment to Taiwan-based companies last year, suggesting that TSMC's capital spending this year could have a positive impact on ASML's business. After all, TSMC is set to increase its 2025 capital spending by almost a third at the midpoint of its guidance range when compared to last year's outlay of $30 billion.
What's more, the foundry giant is set to direct 70% of this spending on advanced process nodes. As a result, it won't be surprising to see ASML's order book inflating further thanks to an increase in demand for its EUV lithography equipment.
Micron Technology (NASDAQ: MU), another ASML customer, is also going to significantly increase its capital spending this year. The memory specialist has guided for a remarkable 73% increase in capital expenditures (capex) for the current fiscal year to $14 billion. Micron points out that the "overwhelming majority of the fiscal 2025 capex is to support HBM, as well as facility, construction, back-end manufacturing, and R&D investments."
Micron's investments in building up its HBM capacity could head higher and drive further growth in its capital expenses. That's because the HBM market is expected to grow at an annual rate of 42% through 2033, according to Bloomberg Intelligence. The increasing HBM demand owing to the deployment of these chips in AI servers could therefore create the need for more EUV lithography equipment that ASML sells.
A big reason to buy the stock before April 16
ASML is in a position to deliver stronger-than-expected results and guidance when it releases its quarterly report later this month. The stock could regain its mojo and go on a bull run if that's indeed the case, which is why it would be a good idea to load up on ASML stock while it is still cheap.
ASML is trading at just 25 times forward earnings right now. That represents a discount to the tech-laden Nasdaq-100 index's earnings multiple of 29. The remarkable jump that ASML could deliver in its top and bottom lines and the potentially stronger investments in semiconductor capital equipment owing to AI could help change investor sentiment in its favor, which is why savvy investors looking to add a beaten-down AI stock that could soar in the long run would do well to buy ASML before its upcoming earnings report.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
