Yahoo Finance

All right, let's turn now to a top trending ticker here on Yahoo Finance, a top story that we're watching. That's ASML. Shares of the chip supplier are falling. You're looking at losses of nearly 8% in extended trading on the move lower on reports of tighter export restrictions are overshadowing a surge in bookings. The company also out with earnings results before the bell. Now, ASML is not the only chip maker in the red today. Reports of those tighter export curbs pushing China uh chip giants, excuse me, including Nvidia, AMD and Taiwan Semiconductor lower here this morning. So here with more, we want to bring in Yost Versteeg. He is InsingerGilissen's a senior analyst. Yost, it's great to talk to you again. So, let's just take a step back because when you take a look at these earnings results that we got from ASML, clearly a lot to be excited about just in terms of demand and the numbers that they put out put up the most recent quarter. But the geopolitical risk is overshadowing that. I'm curious what the implications of these reports, what that ultimately means here for ASML?

Well, actually, I don't think that the imp implications are so bad for ASML. Um, when you look at China, China semiconductor manufacturing, they're using mainly low-end chips. And uh US wants them to keep on producing low-end chips because the world needs it. And they want to stop them or not be able to make high-end chips because they can use it for artificial intelligence. And some years ago, there was an a very interesting report from the national security led by Eric Schmidt. And it was said that uh the US should prevent China from becoming better and better in AI because who is the best in AI will win the next war. So, it's quite serious for the US to stop China uh developing artificial intelligence and so to deprive them from the high-end chips, but they're not producing it so much yet. So, I don't think the implications are very, very strong for ASML.

The market strongly disagrees with you, it would seem this morning. What do you think the disconnect is?

Yes, of course. Well, the ASML was up, was it 30, 40% this year? Uh, when you invest in these kind of tech companies, you can get uh very, very, very nice uh performance. But now and then, there's a rainy day, and that's the way I see it. So, uh, just from the beginning of the year, you're still in in a a big profit. So, I actually don't worry about it. And uh I'm I'm used to it. Sometimes, it's bad. Sometimes, most of the time, is good. But there are some rainy days there. So, I'm absolutely not worried there.

Yost, I'm curious how you think ASML balances uh the threat here of export controls, further export controls from the US. And then, also just balancing that with the need just in terms of the fact that it's so critical to their business to sell gear here to China. How do they balance that? What I guess do you think those discussions are like right now?

Well, yeah, that's difficult to say because they don't want to say anything about the geopolitic things. But when you look at the revenue, 50% of the revenue in the second quarter came from China. But that was uh heavily distorted by the fact that uh there were very few um expensive machines sold to Taiwan. So, it is it was distorted. When you look to the order portfolio, China is way more smaller. Maybe it's it's 10% or something. So, that's also a very important uh part of ASML. Another thing is, they still sell machines like the NX NX 1980. That's a machine with a value of about 60, 70 million. And that is still allowed. And uh I I think uh the US will uh keep on will will make it possible for ASML to still keep selling that machine because it's important for more, yeah, lower, middle-end chips. So, uh there is still a lot of market for for ASML in China, but only not in the in the high end. And uh and you know, half of the factories in China, they are uh foreign companies. So, when there uh when they don't get the machines anymore, they'll they go back to their own country, to Taiwan, or India, or Vietnam, or America. And the other half is just Chinese companies, and they keep on producing these mature nodes, these low-end chips because we need them for the car manufactory, for all kinds of electronics. So, the effect is it's it's a pity that they can't sell these machines anymore to to China because it was a in the future, it could be a nice, interesting market. But the market is so big. When you look we just see um big uh developments like uh electrification, artificial artificial intelligence, uh the energy transition. There's a a big market there when the whole semiconductor market will double in the coming years to 1 billion a year. So, there's a lot of growth there. And ASML has a perfect position there. I'm absolutely not worried. And it's just just uh the normal volatility you you you get once in a while.

Really quickly, I want to talk to you about this interview that former President Trump gave to Bloomberg Businessweek and in it, he talked about cooling the relationship with Taiwan and the protectionism the US has over Taiwan. What impact could that have on chips, particularly as we do see tensions ratcheting up in the South China Sea?

Yes, it's not smart to say that. But uh I I think it's actually positive for ASML because there are more and more companies, or more and more countries who want to have their own semiconductor production. So, uh will be more widespread, not only focused in Taiwan, but also we see that there are three fab perhaps from TSMC in Arizona in US. But there will be more pressure to build more factories outside of Taiwan. So, there will be in a long run, there will be a little bit maybe overcapacity, but in the in the short run, it's absolutely not uh not not bad for ASML.