ASML stock nears new highs as European chip giant awaits major turnaround

If you would judge ASML (ASML) shares of its sales and profits, it would be hard to believe it belongs in the IBD Big Cap 20.


FactSet data shows a mix of gains and declines in the quarterly performance of the Netherlands-based chip equipment maker. This data includes a 5% decline in earnings per share in 2022. (ASML reports its results in euros.)

But analysts are now expecting a robust 2023. The consensus estimate for first-quarter earnings is €20.06 per share, up more than 30% from a memorable 2022.

Over the past year, the company has struggled with Chinese trade restrictions and a weakening semiconductor market. Not that everything was that bad. Gross margin ended the year at 50.5%, while the company ended the year with a record €40.4 billion in backlog.

The US ban on chip technology exports to China remains a risk for ASML stocks. However, in its fourth-quarter report, the company said customers expect the chip market to recover in the second half of this year.

The competitive advantage of ASML Stock

ASML has a competitive advantage. It manufactures advanced lithography equipment for etching tiny circuits onto semiconductors. It is the sole supplier of next-generation extreme ultraviolet (EUV) chip technology to the semiconductor industry.

Cowen named ASML a top pick for its Europe Best Ideas and gave the stock an outperformance rating.

“Strong EUV demand and extended lead times give us confidence that ASML can outperform WFE (wafer fab equipment) in the near term,” wrote Krish Sankar, analyst at Cowen, in a note to clients.

The long-term roadmap of ASML’s three largest customers — Taiwan semiconductor (TSM), Samsung And intel (INTC) – supports (approximately) 40% year-on-year EUV sales growth in 2023-24.

“We believe that as EUV has become mainstream, ASML is in for big earnings growth,” the analyst added. ASML has increased its share in lithography to over 80%, compared to less than 55% 10 years ago.

The mixed earnings trend has not deterred institutional investors. According to MarketSmith, the number of funds owning ASML shares has continued to grow over the past year, from 760 in the first quarter of 2022 to 869 at the end of 2022.

ASML Stock Forming Bullish Chart

Most analysts have ASML buy or hold ratings, FactSet data shows.

ASML stock peaked at $895.93 in September 2021 and slid nearly 60% last October to $363.15. In the past eight weeks, the stock formed the first basis of its recovery.

A mug without a handle has a buy point of 698.69. Stocks climbed back above the 10-week moving average a few weeks ago. Watch the relative strength line for a new high. If this happens before or during the stock’s move to new highs, it’s a bullish sign.

The chip industry is developing well overall. The VanEck Semiconductor ETF (SMH) is up nearly 9% in March, marking its fifth monthly gain in the last six months.


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