ASML Sees a Temporary Dip Amid AI Boom: Is a Recovery Ahead?
ASML (NASDAQ: ASML), the top manufacturer of lithography equipment for semiconductors, has recently struggled to keep up, lagging behind many stocks benefiting from the artificial intelligence (AI) surge. Shares are currently trading below their peak during the pandemic due to a slower recovery and a recent cut in forecasts, which affected stock prices.
Despite this setback, ASML holds a strong position in the market. As the only producer of extreme ultraviolet lithography (EUV) machines, it has a unique edge in creating the advanced chips that are essential in today’s tech landscape.
Image source: Getty Images.
Positive Trends on the Horizon
While AI is capturing most headlines in the semiconductor sector, it still represents a small portion of overall chip production. ASML anticipates that AI will significantly boost its growth in the coming years. Leading foundries that rely on ASML’s technology will need top-tier equipment to manufacture cutting-edge chips, driving demand.
During the recent Investor Day, ASML projected annual revenues between 44 billion euros to 60 billion euros by 2030, with anticipated gross margins of 56% to 60%. Although this range is wide, the midpoint suggests an 11% compound annual growth rate. Additionally, the expected growth in gross margin from the current 51% indicates an increase in gross profit, potentially more than doubling at a compound annual rate of 13%.
Is ASML a Smart Investment?
If ASML achieves the high end of its revenue guidance, the stock could see significant gains over the next five years. Even reaching the midpoint of projections would likely enhance profit margins as the company scales its operations.
Currently trading at a forward price-to-earnings ratio of 30, ASML appears reasonably priced for a firm with a robust competitive edge and a clear strategy to benefit from the AI revolution. Consequently, its recent stock price dip may present an attractive buying opportunity for investors.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
