ASML Holdings Stock Tumbles 12% Amid Lowered EPS Outlook, Yet Remains a Top Pick
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Why ASML Holdings Sank 12% This Week | The Motley Fool
The semiconductor equipment giant, which has a monopoly on crucial EUV technology needed for making advanced semiconductors and memory, sold off along with the sector on Tuesday as economic fears re-emerged. Adding insult to injury, a Wall Street analyst also downgraded shares on Wednesday, citing too-optimistic growth projections for 2026 and beyond. On Wednesday, UBS analyst Francois-Xavier Bouvignies downgraded ASML from "buy" to "hold," ending the analyst's bullish call on the stock since August 2022. Of course, ASML has done quite well over that span, rising some 60% since that time and seeing its valuation rise to 42 times earnings. But Bouvignies suggests that while earnings should continue to grow in the years ahead, he's cautioning they might not grow as fast as ASML's relatively high multiple implies. Investors anticipate big-time growth for ASML in 2025, and Bouvignies actually agrees with this. Bouvignies even called ASML "one of the best fundamental stories in the European tech sector" in his note. The problem is that it gets much murkier after that. Bouvignies noted that the move to new gate-all-around transistor structures may require increased intensity of other types of semicap equipment, but not necessarily more EUV lithography steps. And while artificial intelligence will give ASML a boost across logic and memory chips, the analyst estimates AI chips will only account for 10% to 15% of sales after 2025. The downgrade, when taken together with a tough week for semiconductor stocks overall, as well as the looming risk of potential equipment sales restrictions to China, sent ASML down more than 10% this week. The note was no doubt discouraging, especially as ASML has already sold off 24% from its all-time highs back in July. The stock's price-to-earnings ratio (P/E) of 42 sits about midway in the range between 25 and 60 experienced over the past three years. So while the dip may look like an opportunity, it's also possible ASML shares could fall further. Still, if ASML stock were to do so, it would likely be a great buying opportunity, as the company's monopoly on key technology gives it a high-probability path to more earnings growth. While the amount of growth is subject for debate, a dip in P/E below 40 times trailing earnings could prove as low a price as one may get for this premium AI player. And it's also possible AI chip demand could surprise to the upside against Bouvignies' forecast. Of note, interested investors should tune into the company's upcoming investor day on Nov. 14 for more detail on its long-term earnings model.
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ASML stock remains top pick despite lower EPS outlook - BofA By Investing.com
On Friday, BofA Securities updated its position on ASML Holding NV (LON:0QB8) (AS:ASML:NA) (NASDAQ: ASML) stock, reducing the price target to €1,064 from the previous €1,302. The firm sustained its Buy rating. The revision reflects a change in the earnings forecast for the fiscal years 2025 and 2026, which have been decreased by 11% and 8% respectively. This adjustment is due to lowered revenue expectations, aligning BofA Securities' outlook with the consensus estimates for sales and earnings per share (EPS) at €36.7 billion/€30.82 and €40.2 billion/€34.46 for the respective years. The analyst at BofA Securities highlighted that ASML's stock is currently trading at 17.4 times its forecasted FY25 enterprise value to EBITDA (EV/EBITDA), which presents a highly attractive risk/reward profile. This valuation is notably below the company's five-year median multiple of 26.6x and also beneath the lower end of its five-year range, which spans from 18.1x to 37.6x. The rationale behind maintaining the Buy rating, despite the reduction in the price target, is based on the belief that the stock's current multiples offer a significant buying opportunity. The analyst emphasized that the lowered earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates and reduced multiples -- from 31x to 28x -- reflect a sector-wide de-rating rather than company-specific issues. ASML, a leading supplier in the semiconductor industry, is considered by BofA Securities to be their top pick among European semiconductor capital equipment (Semicaps) stocks. The recent decline in the stock's price is viewed as an enhanced opportunity for investors to purchase shares. This perspective is maintained even with the newly adjusted price objective of €1,064, equivalent to $1,149, which has been set in light of the current financial climate and market trends. In other recent news, ASML Holding NV has been a hot topic among financial analysts. Morgan Stanley (NYSE:MS) adjusted its price target for ASML stock, citing recalibration of estimates and maintaining an Overweight rating. The firm anticipates a significant recovery in ASML's order book by 2024, with expectations of a considerable earnings increase in 2025. On the other hand, UBS downgraded ASML's stock from Buy to Neutral, expecting a deceleration in the company's earnings per share growth rate. In contrast, Barclays (LON:BARC) upgraded ASML's stock from Equalweight to Overweight, viewing the recent drop in ASML's share price as an attractive investment opportunity. ASML's CEO, Christophe Fouquet, commented on the US-led initiative to limit the company's exports to China, suggesting these measures appear to be driven by economic motives. He also highlighted the impact of these restrictions on China's chip manufacturing progress. Prime Minister Dick Schoof of the Netherlands voiced his intention to consider the economic interests of ASML, the largest company in the country and the biggest tech firm in Europe. These are some of the recent developments surrounding ASML Holding NV. The company's financial projections for 2024 and 2025 have been reiterated, emphasizing the demand for AI chips despite an irregular recovery in the computer chip markets. The financial and geopolitical landscape continues to evolve, with analysts and investors closely monitoring the situation. As BofA Securities revises its stance on ASML Holding NV, investors may find additional context through real-time data and insights from InvestingPro. ASML's market capitalization stands at a robust $312.97 billion, reflecting its significant presence in the semiconductor industry. Despite recent adjustments in price targets and forecasts, ASML maintains a high price-to-earnings (P/E) ratio of 42.18, indicating a premium valuation by the market, which could be attributed to its status as a prominent player in its sector. The company's revenue for the last twelve months as of Q2 2024 is reported at $27.26 billion, with a gross profit margin of 51.44%, showcasing its ability to maintain profitability. InvestingPro Tips highlight that ASML has experienced a notable price decline over the past three months, with a 24.3% drop in total return, which may present a potential entry point for investors. Moreover, the company has demonstrated a commitment to shareholder returns, maintaining dividend payments for 18 consecutive years and reporting a dividend growth of 8.84% in the last twelve months as of Q2 2024. For those considering a long-term perspective, ASML has delivered a strong return over the last five years. To explore additional insights, investors can access over 14 InvestingPro Tips for ASML, providing deeper analysis and metrics to inform investment decisions.
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ASML Holdings, a key player in the semiconductor industry, experienced a significant 12% stock drop this week. Despite the setback, analysts maintain a positive long-term outlook for the company.
ASML's Stock Plunge
ASML Holdings, a crucial supplier of lithography machines for semiconductor manufacturing, saw its stock price plummet by 12% this week
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. The sharp decline came in the wake of the company's revised earnings per share (EPS) outlook, which has raised concerns among investors about the near-term prospects of the semiconductor industry.Factors Behind the Stock Drop
The primary catalyst for ASML's stock decline was the company's announcement of a lower EPS outlook for the upcoming period. This adjustment reflects the ongoing challenges faced by the semiconductor industry, including supply chain disruptions and fluctuating demand patterns. The news has prompted investors to reassess their positions in ASML and other semiconductor-related stocks.
Analyst Perspectives
Despite the recent setback, several analysts maintain a positive long-term outlook for ASML. Bank of America (BofA), for instance, continues to view ASML as a top pick in the sector
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. The bank's analysts believe that the current challenges are temporary and that ASML's fundamental strengths remain intact.ASML's Market Position
ASML holds a unique position in the semiconductor industry as the sole supplier of extreme ultraviolet (EUV) lithography machines, which are essential for producing advanced chips. This monopoly in a critical technology gives ASML a significant competitive advantage and underpins the positive long-term outlook expressed by many analysts.
Industry Dynamics
The semiconductor industry is known for its cyclical nature, with periods of high demand followed by slowdowns. The current downturn is seen by some experts as a temporary phase in this cycle. They argue that the increasing demand for advanced chips in various sectors, including artificial intelligence, 5G, and autonomous vehicles, will drive long-term growth for companies like ASML.
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Investor Considerations
While the short-term outlook for ASML stock may be uncertain, long-term investors are advised to consider the company's strong market position and the essential nature of its products in the semiconductor manufacturing process. The current stock price decline may present an opportunity for investors with a longer time horizon to acquire shares at a more attractive valuation.
Future Outlook
As the semiconductor industry navigates through its current challenges, ASML is expected to play a crucial role in the development of next-generation chips. The company's ongoing investments in research and development, coupled with its strong relationships with major chip manufacturers, position it well for future growth once the industry cycle turns positive again.
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