Table of Contents
Key Points
- ASML Holding has a strong competitive advantage but faces increasing competition.
- Despite solid results, weak guidance has caused the stock to decline.
- The dividend yield is healthy but not attractive given the high stock valuation.
- There are alternative stocks that may present better investment opportunities.
ASML Holding, listed on NASDAQ as ASML, is a recommended investment for exposure to AI technology. The company is the sole manufacturer of advanced lithography technology used in the production of the world’s most advanced microchips. In addition to the growing demand for AI technology, the expansion of chip-making capabilities worldwide, including reshoring production in the US, is expected to benefit ASML Holding.
However, investors should be aware of the risks associated with this investment. These include rising competition, uncertain economic conditions, and geopolitical tensions. Considering these factors, ASML Holding could be an excellent investment but at a lower price, which may become available soon.
Competition Rising for ASML Holding
Canon recently entered the semiconductor market with its FPS-1200NZ2C, a nanoimprint semiconductor manufacturing system designed to compete against ASML’s advanced lithography machines. Canon claims that its technology is simpler, more user-friendly, and cost-effective compared to ASML’s equipment. This development poses a threat to ASML Holding’s market position and could impact its future revenue.
The FPS-1200NZ2C technology has been under development for decades but is now entering the mass market. Its precision and ability to create multi-dimensional circuit patterns in a single step are expected to lower costs for users. The technology can replicate a 5nm chip design used in advanced process nodes and has the potential to create even smaller chips, as small as 2nm.
ASML Holdings Issues Tepid Guidance
ASML Holding reported solid revenue of €6.7 billion, a 15.5% increase compared to the previous year. The company also achieved a strong margin with earnings of €4.81 per share, showing similar growth. However, the company’s guidance for the future was cautious, emphasizing that 2024 could be a challenging year for the industry.
The management team attributes the uncertainty and lingering inventory issues as potential obstacles to the company’s long-term outlook. They anticipate that 2024 may have flat revenue growth compared to 2023, which is lower than analysts’ consensus forecast. Furthermore, ASML Holding expects a slight contraction in gross margin. These factors, along with increasing competition and high valuation, have put pressure on the stock price, and the recent downgrades and price target reductions have exacerbated the downward trend.
ASML Dividend No Catalyst for Buyers
ASML offers a healthy dividend yield, but it is relatively low at around 1.0%. Given the current stock valuation and technical outlook, the dividend may not be attractive for buyers. The stock price has already experienced a decline and is nearing the 150-day moving average. If the market fails to provide support at this level, the stock could potentially fall further to around $500 or even lower.
