ASML Holding: On Sentiment, Semiconductors & Sanity
What’s The Deal With ASML Holding N.V.?
ASML Holding N.V. (Nasdaq: ASML) is a powerhouse in the semiconductor equipment market … and that’s putting it lightly. We all know there’s a semiconductor shortage. And we all know that in order to fix the shortage, chip companies need to make more chips. Duh…
ASML Holding is on the front line of this chip shortage battle. It literally makes the machines that make semiconductors. But ASML is much more than that … it has a moat.
Aww, jeez Mr. Great Stuff! Semiconductors again? I’m so tired of chips I can barely even eat chips and salsa!
You watch your mouth about chips and salsa! I may or may not be eating that ambrosia of snacks and appetizers as I write this. So good.
Anyway … I’m talking figuratively about ASML’s “moat” here. Clearly, the company doesn’t have a large body of water surrounding it to keep out invaders.
But it does have technology that other semiconductor makers don’t: extreme ultraviolet (EUV) lithography and deep ultraviolet (DUV) lithography systems.
Remember those 5- and 7-nanometer chips that AMD has, which Intel’s having trouble making? Yeah, you need EUV and DUV to make those.
And ASML specializes in EUV. In fact, no other major semiconductor equipment maker does EUV.
But I hear you on the chip fatigue. I mean, I love technology and tech stocks. I’m even rather partial to semiconductor stocks. I have been since the days I used to build custom PCs for people back in college. Chips are in literally everything these days … even vaccines, apparently (insert eye roll here).
But ASML Holding’s story is about more than just semiconductors. It’s about forgotten fundamentals. It’s about feelings and fear. It’s about … dare I say it? … the heart of Wall Street’s massive problem right now.
And, trust me, Great Ones … Wall Street has a massive problem.
Go Away ASML Fundamentals; You Bother Me!
If you’re an ASML investor or you’ve watched the stock at all in the past year, you know ASML stock has gone on an impressive run. Shares are up more than 110% since October 2020 — and for good reason.
Last year, ASML saw revenue growth accelerate from just 20.62% in fiscal 2020 to 39.11% in fiscal 2021. So far in fiscal 2022, ASML’s revenue has grown 32.28% … and the fiscal year isn’t even over yet.
Furthermore, the company has blown out Wall Street’s earnings expectations in every quarter for the past year.
And if that wasn’t enough, during its September 29 Investor Day presentation, ASML said it would hit annual revenue somewhere between $28 billion (€24 billion) and $35 billion (€30 billion), with gross margins of 55% by 2025!
Let me say that again: gross margins of 55%! That’s just ridiculous. That’s higher than industry darling Taiwan Semiconductor is projecting!
Once More With Feelings?
Riding this fundamental high and Wall Street’s euphoria, ASML stock hit an all-time high of $895.93 back in late-September. And then … the bottom fell out.
ASML stock went on a 20% bender, plummeting sharply from its all-time high to a low of about $712 on October 4. A ridiculous sell-off that’s only just now showing signs of ending.
You’ll also note that this sell-off took place during ASML’s Investor Day presentation when it boosted both revenue and margin guidance.
So, what gives? Why did this outperforming company — this red-hot stock — drop like a rock despite an increasingly tight semiconductor market and soaring profits?
Feelings, investor sentiment … and fear.
As you probably noticed, it’s very easy to hurt Wall Street’s fee-fees these days. For ASML, the problem started on September 28 when Wall Street had another bout of inflation fears. If you missed my explanation of why the market plunged on September 28 and how traditional investing is practically dead, read this now!
For those without time to read — shame on you — the short version is that Wall Street is trading fully on investor sentiment right now. Fundamentals have literally been thrown out the window. Nowadays, it’s all about feelings.
And those feelings are easily shaken … especially for tech stocks like ASML. In fact, while the market was reeling in the inflation fears, New Street Research downgraded ASML from buy to neutral. Despite the semiconductor supply crunch, New Street apparently believes that the semiconductor equipment sector is “getting closer to a cycle peak.”
Umm … peak? In this market? With everyone and their mother jonesing for chips? Not on your life, buster.
Ironically, New Street issued its downgrade two days before ASML’s Investor Day presentation. You know, the presentation where ASML boosted its revenue and margin guidance? Let me help you with that egg on your face, New Street.
ASML & The Wall Street Woes
So, let’s recap what’s going on:
- ASML is a semiconductor equipment maker with an exclusive and in-demand technology: EUV.
- ASML has seen revenue growth accelerate during the past two years, up 39% last year and 32% this year.
- ASML just boosted its revenue and margin guidance through 2025.
- But … Wall Street is worried about inflation.
- Analysts apparently believe the chip boom will end soon … despite the current shortage.
Inflation and an end to the semiconductor boom amid a chip shortage?
That has to be the weakest bear case for a stock I’ve seen in a long, long time. And yet … here we are, with ASML down more than 20% from its September peak.
That drop has nothing at all to do with ASML’s business model, its products, its operations or its revenue — all of which are outperforming across the board.
You can lay that 20% drop squarely on investor sentiment … i.e., fear.
As you know, I love these kinds of setups in the market, where Wall Street’s feelings run counter to a company’s actual performance.
If you’re jazzed about ASML, now is a great time to buy in. For clarity, I’m not adding ASML to the Great Stuff Picks portfolio … I have my reasons, and the portfolio is already heavy with semiconductor stocks.
But, if you’re looking for a chip investment with huge upside potential and you aren’t already filled to the brim with chips stocks, you won’t go wrong with ASML.
Insert Shameless Marketing Plug Here!
As for the rest of the market … I’ve said this before, and I’ll say it again until I’m blue in the face: Fundamentals are dead. Sentiment rules the roost.
This is Wall Street’s massive problem laid bare. We’re just talking about one solitary tech stock, but the problem is much, much bigger.
In fact, it’s so widespread that I just had to find a way to protect you, Great Ones. I couldn’t just leave you dangling in the wind with no safety net, no means of protecting your investments … or protecting your wealth.
And so, despite the shut-in hermit that I am, I felt compelled to step out from behind my comfy desk, brave the slings and arrows of large groups of people in airplanes … and sit down with market expert Keith Kaplan, CEO of TradeSmith.
I did this to share firsthand details on what could become one of the biggest moneymaking events in the market — ever.
I’m calling it: The Final Run Up.
I want you to know that while this is most certainly a shameless marketing plug, I wouldn’t back it if I didn’t believe it would help you immensely. It takes a lot to get me to leave my Hobbit hole, after all … and I wouldn’t be doing it if not for you Great Ones.
I really believe in what Keith has going on over at TradeSmith … and I know that what you’ll learn in The Final Run Up event will not only save you from this brewing Wall Street catastrophe … it will show you how to make money even when the sky is falling.
Did I mention it’s free? Plus, you’ll get a few freebies just for going to the show!
Do I know how to take care of you or what?
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Editor, Great Stuff