ASML: The Potential AI Stock Split Candidate Powering the Semiconductor Industry

Possible Stock Splits in 2025: 2 Unstoppable Growth Stocks Each Up More Than 600% in 8 Years to Buy Now, According to Wall Street | The Motley Fool

These two companies still have a lot of upside left, and a stock split could be in the cards. When a company decides to split its stock, it doesn't change any of the underlying fundamentals or value of the business. Nonetheless, it usually follows significant share-price appreciation, and it signals confidence from management that the future will see the stock continue to rise. As such, many investors flock to stocks when they announce forward stock splits as well as shortly after the splits occur. This suggests investors may do well to take a look at companies that have the potential to be stock-split candidates. These companies still have plenty of upside left and a stock split could attract a lot more investor attention. Getting in before the stock split could work out nicely, even for long-term investors who are less concerned about timing a stock purchase. Even if these stocks never split their shares again, Wall Street still sees good upside for each. Both Microsoft (MSFT 0.11%) and ASML Holdings (ASML 0.81%) have seen their share prices soar more than 600% over the past eight years. That's the kind of price appreciation that often leads to stock splits, especially since neither stock was starting from a small base. Meanwhile, the average analyst on Wall Street still sees significant upside for both. Microsoft made an early bet on generative artificial intelligence (AI) leader OpenAI and sizably increased that bet in early 2023 with an extra $10 billion investment. As a result, Microsoft's Azure cloud computing platform has become the first stop for developers looking to build on top of large language models like GPT-4o. Not only that, but Microsoft's integrated generative AI capabilities across its various software platforms, including Github, Dynamics 365, Office 365, and the Power platform. Its efforts have driven incredible results. Azure revenue climbed 30% in the fourth quarter. What's more, management expects Azure results to accelerate in the second half of fiscal 2025 as its massive investments in new data center capacity come online. Microsoft is also seeing strong uptake on its Copilot software, an AI-powered assistant that can help workers accomplish tasks more efficiently and effectively. Copilot customers for Microsoft 365 grew more than 60% sequentially in the fourth quarter. With over 400 million Office 365 users, Microsoft has a long runway for continued growth. Not to mention, the number of users continues to grow, as Microsoft dominates the workplace productivity software space. The average price target among Wall Street analysts is $496, which implies about 19% upside for the tech giant's stock. At its current price, shares trade around 32 times forward earnings estimates. Considering the growth drivers pushing Microsoft's operating results and its competitive position, that high multiple is well worth paying for investors looking at growth stocks. Even at its massive size, Microsoft is growing quickly. While shares have backed off of their all-time high price, they still trade well above $400. A split at this price is a reasonable maneuver for the third-highest-priced Dow component. ASML has also been a beneficiary of the booming demand for artificial intelligence. Its extreme ultraviolet (EUV) lithography machines are essential hardware for printing the most advanced semiconductors in the market. ASML is the only company supplying those machines. As companies like Microsoft and other hyper scalers build out massive data centers full of silicon, ASML stands to see the benefits over the long run. It's important to note that chip manufacturers, known as foundries, can't just expand their operations overnight. There are long lead times for ASML's massive machines: Not only do they need to take delivery and install them, they also need the space in the first place. As such, ASML's management has called 2024 a transition year. It expects flat revenue and gross margin contraction as it ramps up production of its newest machinery for delivery in 2025. But 2025 should be a big year for the company. It expects 30 billion to 40 billion euros ($33.2 billion to $44.2 billion) in revenue, an increase of 27% from 2023 at its midpoint. In the long term, ASML should see strong growth from unit sales and even better growth from ongoing servicing of its existing install base. In 2022, management forecast 44 billion euros to 60 billion euros ($48.1 billion to $65.6 billion) by 2030 with gross margin expanding to as much as 60% from about 51.5% today. Considering those forecasts preceded the boom in demand for AI chips, investors should expect revenue closer to the high end of that forecast. The average price target among Wall Street analysts is $1,127, which implies about 33% upside for the stock. With shares trading at about 26 times 2025 earnings estimates, the shares look inexpensive relative to their earnings growth over the next few years. With strong forthcoming sales and expanding margins, analysts expect earnings growth above 20% for the next five years. That makes the stock extremely attractive at this price. ASML shares are well off their all-time high, but shares trade around $850 each. That's plenty high enough to justify a stock split, but as shares climb above $1,000 and remain there, it could push the company to split its stock and bring the price back down to the triple-digit territory.

This Could Be the Next Big Artificial Intelligence (AI) Stock Split. Here's Why You Should Buy It Before It Happens. | The Motley Fool

This essential supplier is key to making the most advanced AI chips for training large language models. The biggest winners in the stock market over the last two years have all been great companies fueling the biggest innovations in artificial intelligence (AI). A stock split isn't necessarily a catalyst for a stock to zoom higher. The fundamental value of a company doesn't change when management decides to split its shares. And in today's age of fractional shares, it only has a minor impact on making the stock more accessible to small investors. But a stock split is a sign of confidence from management that shares will continue to climb, and few people have more insights into the future of a company and its stock than management. So, investors are rightly interested in what could be the next stock to undergo a split. One company essential to the supply of AI semiconductors looks like a great candidate: ASML Holding (ASML 0.07%). And at today's share price, investors should be looking to buy the stock before it announces a split. ASML builds and services photolithography machines, which semiconductor manufacturing companies use to produce the chips designed by companies like Nvidia. Basically, without ASML's machines, there are no AI chips. It's the only supplier of extreme ultraviolet lithography (EUV) machinery, a necessary technology for printing the most advanced chips, such as those used in AI data centers for training and running large language models. If a manufacturer is printing a high-end semiconductor, it's using ASML's machines. Customers include Taiwan Semiconductor Manufacturing, Intel, and Samsung. All three revamped their foundries about a decade ago to accommodate ASML's machinery. But the company isn't reliant on selling more machines every year to fuel revenue growth. It receives ongoing revenue from servicing machines already in use and selling replacement parts. The recurring revenue from servicing should grow as more machines are installed in chipmakers' foundries. ASML's revenue from its installed base has grown significantly faster than its system sales over the last 15 years as foundries add more of its equipment to their operations while maintaining and updating old equipment. And given the long lifespans of ASML's machines (25 to 30 years), that's a steady and growing source of high-margin revenue. Newer machines using the latest EUV technology will go into service next year. And the increased complexity of the high-end machines could result in even greater revenue from service and replacement parts relative to older machines. ASML referred to 2024 as a transition year. It doesn't expect any revenue growth, and it forecasts gross margin contraction this year as it gears up to sell its latest EUV machines. That stands in stark contrast to a company like Nvidia, which has seen revenue and profits continue to soar in 2024. So it's no wonder investors haven't been nearly as excited about ASML as they are about big-name chipmakers. But that could be an opportunity for patient long-term investors. ASML expects 2025 to be a big year. Management's outlook calls for between 30 billion and 40 billion euros ($33.17 billion to $44.2 billion) in revenue next year as foundry openings using its newest machines go into service. At its midpoint, that represents a 27% increase from 2023. At its investor day in 2022, management provided an outlook for sales in 2030 of between $48.65 billion and $66.34 billion. Considering that was before the AI boom really took off, it's a good bet that revenue will come in on the high end. Management might update that outlook to a higher or narrower range at its next investor day in November. Along with sales growth, management expects strong margin expansion. It sees gross margins between 54% and 56% in 2025 and 56% and 60% by 2030. And while it hasn't explicitly forecast operating margin expansion, it should see good operating leverage from its research-and-development and selling, general, and administrative expenses as its revenue scales up toward the $66 billion mark. All of that should translate into very strong profit growth. And considering the technology lead and relationships ASML already has with the largest foundries in the world, there shouldn't be much standing in the way of achieving those numbers. ASML currently trades around $835 per share. While that's well off its all-time high of around $1,100, it's still quite a lofty price. Stocks have split with far lower prices. The company last executed forward splits in the late 1990s and the year 2000 amid the dot-com boom. With a strong outlook based on the ongoing spending to build the next generation of AI chips, ASML could be motivated to split its shares in the near future as it sees significant growth ahead. Even without a stock split, you should consider adding shares to your portfolio. The stock currently trades around 26 times forward earnings expectations. Given the potential for strong and predictable revenue increases and margin expansion for years to come, the company should be able to produce earnings growth that more than justifies that slight premium to the overall S&P 500. And when you compare ASML's price to other AI stocks, it's an absolute bargain.

Stock-Split Watch: Is ASML Holding Next? | The Motley Fool

Dutch company ASML Holding (ASML 0.07%) is a big player in the semiconductor industry. Its proprietary lithography machines produce cutting-edge chips, including those powering the latest artificial intelligence (AI) technology. The company's stock has thrived on Wall Street's AI enthusiasm, making it a potential stock-split candidate now that it trades at more than $800 per share. The company has split its stock multiple times before, but it's been more than two decades since its last traditional split, so it would make a lot of sense. Yet, something seems off at ASML, and the stock, despite trading at a high share price, has fallen 25% from its high. Should investors anticipate a stock split from ASML anytime soon? Naturally, if something has happened once or more before, it's plausible that it could happen again. ASML has split its stock four times, the last occurring in April 2000, not including a reverse stock split in 2007: Stock splits are a way companies lower their share price by proportionately increasing the number of shares. The lower price helps investors accumulate more shares, and the additional liquidity from increasing the number of shares affords employees more control over how they cash out their stock-based compensation. Plus, it gets the company some easy publicity. Most importantly, stock splits don't fundamentally change anything about the company or its stock. When you slice a pizza into more slices, there is neither more nor less pizza than before. Each slice represents a smaller portion of the pie. Stock splits never change a stock's valuation. Sometimes, it's more about sending a message than the numbers. Stock splits can entice buyers with lower share prices, but it sends a positive message when a company splits its stock at an all-time high. Sort of like: Hey, things are going well, and we want more investors to get in on the good things happening here. It's harder to send that message if ASML splits its stock while it's down notably from its highs. ASML's current high is over $1,100 per share. Why would management split the stock now if it didn't then? If anything, I would argue that splitting its stock after a 25% decline sends a message begging people to buy the stock rather than attracting investors to a good thing. It can all seem silly, especially if you're a long-term investor who focuses on the businesses behind the stocks. However, there is a reason the business channel on TV scrolls stock prices along the bottom of the screen or shows price charts when discussing a company. Right or wrong, share prices often dictate the narrative around companies, so companies weigh all of this when considering a stock split. The Nasdaq Composite, the benchmark U.S. index for technology stocks, which ASML is part of, is within a few percentage points of its all-time high. So, why might ASML be down so much in the first place? Tensions between the United States and China have intensified over AI chips. ASML's extreme ultraviolet (EUV) lithography machines are essential in producing the high-end chips needed for AI. The United States wants ASML to restrict exports to China and cut off service on systems the company has previously sold into the country. The United States has cited national security reasons. In response, China has threatened the Netherlands and ASML with economic retaliation if the company implements restrictions. Roughly half of ASML's sales through the first half of this year came from China, so this is a potentially big deal. Whether this will boil over and impact ASML remains to be seen. ASML is the company building EUV machines, so China would need a workaround if it opted not to use ASML's equipment. Additionally, it seems unlikely that the Netherlands would allow its largest technology company to suffer over politics. Still, it's something to monitor, and it makes sense that the stock, which peaked at an expensive price-to-earnings ratio of almost 60, would cool off in the face of this. Is this dip a buying opportunity? It could be given ASML's dominance in the technology that makes AI possible, though a stock split shouldn't be much of a factor in that decision. If you were rooting for a stock split, you could be waiting a while longer.