The demand for semiconductors is high as companies invest heavily in AI technology. ASML (ASML -1.27%) saw its stock rise by 40% this year, but has since lost those gains.
Despite expectations for strong semiconductor orders in 2024, ASML reported a decline in orders for the third quarter, primarily due to challenges outside of AI.
The stock is currently down 36% from its peak, trading close to $700, making it a potential candidate for a stock split. Is now the time to invest in ASML?
Slowing Orders Amid AI Demand
ASML provides advanced machines for semiconductor manufacturing, and is the only supplier of extreme ultraviolet (EUV) technology. Without its equipment, manufacturers like Nvidia couldn’t produce cutting-edge AI chips.
Although AI spending is still high, ASML only received €2.6 billion in orders this quarter, a drop from over €5 billion the previous year. Third-quarter revenue rose to about $8.1 billion, but new orders won’t affect revenue for over a year due to a backlog.
In 2024, ASML expects revenue of $38.4 billion, but revised its 2025 outlook lower, prompting a drop in stock price after the earnings report.
Long-Term Projections
The semiconductor market is volatile, and ASML is facing a downturn in all segments except AI. However, the company projects an average growth of 9% per year through 2030, potentially leading to $54.2 billion in sales by then.
If it maintains a 30% operating margin, ASML could see operating earnings of $16.3 billion in 2030, which would make its current valuation attractive if growth expectations are met.
Consider for Dividend Growth
ASML shares might appreciate in the next five years, and they also offer dividends. The dividend has grown 710% over the last decade, although the current yield is below 1%. Management aims to increase the dividend and repurchase shares, enhancing returns.
With potential for capital appreciation and dividend growth, ASML appears to be a solid investment, especially as its stock approaches $1,000, which may lead to a future stock split.
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