The demand for semiconductors is soaring as companies invest heavily in chip production for AI. ASML, a leading semiconductor equipment maker (ASML, +3.23%), saw its stock rise by 40% this year but has since lost all those gains, now down 36% from its peak. Despite the ongoing demand for AI, ASML reported a decline in orders.
Order Slowdown Despite AI Demand
ASML manufactures advanced lithography machines necessary for producing high-end semiconductors. They uniquely offer extreme ultraviolet lithography (EUV) technology, essential for creating Nvidia’s AI chips. However, in Q3, ASML recorded only €2.6 billion (about $2.8 billion) in new orders compared to over €5 billion ($5.4 billion) the previous year. Their revenue for the quarter rose to around $8.1 billion, but due to a significant backlog, new orders won’t contribute to revenue immediately. For 2024, ASML expects revenues of $38.4 billion, a downgrade from prior forecasts, leading to a drop in stock price.
Prospective Long-Term Growth
The semiconductor equipment industry is cyclical, currently facing a down cycle outside AI. However, ASML anticipates a 9% annual growth in spending through 2030, projecting around $54.2 billion in sales by that year. With an operating margin of about 30%, this could translate to $16.3 billion in operating earnings. Although ASML seems undervalued, it isn’t a major bargain, yet reliable growth prospects may uplift stock performance over five years.
Potential for Dividend Growth
ASML could offer good returns for patient investors. It has increased its dividend by 710% in the last decade, albeit the current yield is under 1%. Management plans to boost the dividend and buy back shares, which should enhance shareholder returns. At its current price nearing $1,000, a stock split in the coming years seems likely, making ASML an attractive buying opportunity.
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