ASML Holding (NASDAQ: ASML) released its third-quarter 2024 results a day earlier than expected, and it delivered a rude shock to investors who were expecting robust growth thanks to the booming demand for semiconductors on the back of the thriving market for artificial intelligence (AI) chips.
Instead, the Dutch chipmaking equipment supplier reported a sharp decline in bookings and also tempered its expectations for 2025. As a result, ASML stock fell 16% following the earnings report. Let's take a closer look at the reasons why ASML's guidance hasn't been as solid as expected and check if the stock's decline could be an opportunity for savvy investors to buy this semiconductor giant.
ASML's cautious guidance has investors worried
ASML reported third-quarter revenue of 7.5 billion euros, along with earnings of 5.28 euros per share. The company's revenue increased by 12% on a year-over-year basis, while the bottom line increased by almost 10%. In U.S. dollar terms, ASML's revenue came in at $8.2 billion, while earnings were $5.80 per share.
The numbers were well ahead of analysts' expectations. Consensus estimates were projecting $5.36 per share in earnings from ASML on revenue of $7.87 billion. However, the company's net bookings for the quarter and a weaker-than-expected 2025 forecast led investors to ignore the earnings beat and press the panic button.
ASML reported net bookings of 2.63 billion euros last quarter, down from the 5.57 billion euros it received in Q2. The bookings figure was nearly flat on a year-over-year basis. Analysts were looking for 5.39 billion euros in bookings from ASML, believing that the robust demand for AI chips is going to drive incremental spending on the advanced semiconductor manufacturing equipment that ASML sells.
However, that wasn't to be the case as the strength in AI was offset by a slower-than-expected recovery in other semiconductor end-markets. ASML management pointed out that "the recovery is more gradual than previously expected," and it expects the trend to continue next year as well. At the same time, ASML says that certain customers are slow in ramping up the production of chips based on new nodes, while memory manufacturers are cautious with respect to their capacity enhancements.
That explains why ASML is expecting its 2025 revenue to land between 30 billion euros and 35 billion euros. That was disappointing for investors, as ASML was originally expecting 2025 sales to land at the higher end of the 30 billion euros to 40 billion euros range.
Based on ASML's 2024 revenue forecast of 28 billion euros, its top line is on track to increase by 16% at the midpoint of the guidance range. The good part is that the company's 2025 guidance points toward a nice improvement as compared to the 1% growth that it is on track to deliver this year. But is that potential acceleration in ASML's growth next year a good reason to buy the stock right now?
There may be a solid buying opportunity around the corner
Global spending on semiconductor equipment is expected to increase by 3.4% in 2024 following a 1.3% dip last year. More importantly, semiconductor spending is expected to rise once again in 2025, growing at a much stronger pace of 17% to $128 billion. Industry association Semiconductor Equipment and Materials International (SEMI) attributes this acceleration in spending to a recovery in the semiconductor capital equipment market that started in the second half of 2024.
So, ASML's end market is expected to be in a much stronger shape next year thanks to the "strong fundamentals and growth potential supporting the diverse range of disruptive applications emerging from the Artificial Intelligence wave," as pointed out by SEMI president and CEO Ajit Manocha. While data center chips have been the driving force behind the growing spending on semiconductors of late, the emergence of edge AI devices such as smartphones and personal computers should open incremental growth opportunities for semiconductor sales in the future.
Fortune Business Insights estimates that the size of the edge AI market could increase from $20 billion last year to almost $270 billion in 2032 thanks to the growing adoption of AI in multiple industries such as automotive, manufacturing, healthcare, retail, energy, and others. As a result, the demand for semiconductors deployed in these industries should improve in the long run, creating the need for more of ASML's machines.
As such, savvy investors looking to add a semiconductor stock to their portfolios would do well to keep ASML on their radar. The stock is trading at 38 times trailing earnings following its latest pullback, and it may be a good idea to buy its shares if it becomes available at a cheaper valuation, thanks to the central role it plays in the global semiconductor industry.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
