ASML Holding NV ASML, the global leader in semiconductor manufacturing equipment, experienced a sharp market reaction following its third-quarter 2024 earnings report on Oct. 15. Since the announcement, ASML stock has plunged by 18.1%, driven by a disappointing outlook for the remainder of 2024 and into 2025. Investors are now asking: Should they buy, sell or hold ASML stock? Here's why holding the stock may be the best strategy for now.
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ASML’s Weakened Outlook Dents Investor Sentiment
ASML posted solid third-quarter results, reporting net sales of €7.5 billion and net income of €2.1 billion, reflecting a healthy 11.9% and 9.7% year-over-year increase, respectively. The company's earnings per share (EPS) rose to €5.28, a 9.8% increase from the previous year. However, despite these strong figures, ASML’s fourth-quarter guidance and cautious outlook for 2025 raised concerns, triggering the stock sell-off.
For the fourth quarter, ASML expects net sales between €8.8 billion and €9.2 billion, but its gross margin guidance of 49-50% highlights ongoing profitability challenges. ASML also anticipates lower order intake in 2025 due to the slower-than-expected recovery in key semiconductor markets, such as mobile and personal computers (PCs). This muted outlook, coupled with broader economic uncertainties, has put pressure on the stock.
Margin Pressures From ASML’s High NA EUV Systems
One major factor behind ASML's profitability concerns is the ramp-up of its High Numerical Aperture Extreme Ultraviolet (High NA EUV) systems. While these systems are critical for next-gen chip production, their introduction has put pressure on ASML’s margins. The 3.5% margin dilution anticipated from these systems in the fourth quarter highlights the short-term costs involved in bringing this cutting-edge technology to market.
ASML shipped two High NA EUV systems in the third quarter, with revenues expected to be recognized by year-end. However, the high capital investment required and the complexity of manufacturing these systems have weighed on near-term earnings.
Geopolitical and Macroeconomic Risks Loom for ASML
ASML faces significant geopolitical risks, particularly related to U.S.-China tensions. With 47% of its lithography shipments in the third quarter coming from China, any further escalation in export restrictions could severely impact its revenues from this crucial market. The growing friction between the United States and China over technology exports has already raised red flags as China's semiconductor sector remains a key source of demand for ASML’s advanced equipment.
Macroeconomic concerns, including inflationary pressures and a potential global economic slowdown, continue to cloud the outlook for the broader semiconductor industry. A slower recovery in demand for chips from the mobile, PC, and memory markets complicates the company's near-term growth prospects.
Increased pricing pressure due to rising competition from major industry players like Lam Research LRCX, Applied Materials AMAT and Advanced Energy Industries AEIS is an added risk for ASML.
Valuation and Technical Indicators: A Concern for ASML Stock
ASML stock is still trading at a premium, even after its recent decline. The stock’s forward 12-month price-to-earnings (P/E) multiple of 27.04X remains significantly above the Zacks Semiconductor Equipment - Wafer Fabrication industry average of 22.98X. For comparison, Lam Research, Applied Materials and Advanced Energy Industries trade at more modest multiples of 20.55X, 19.38X and 22.84X, respectively.
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On the technical side, ASML shares are trading below the 50-day and 200-day moving averages, a bearish indicator suggesting the possibility of further downside in the near term.
Moving Average Indicates Bearish Trend
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Long-Term Prospects Still Strong for ASML
Despite these headwinds, ASML remains a crucial player in the semiconductor industry, particularly in EUV technology, which is essential for producing advanced chips used in artificial intelligence (AI), 5G and high-performance computing. The company’s €36 billion order backlog provides some stability, and ASML’s leadership in lithography equipment positions it well for long-term growth as the global demand for semiconductors continues to rise.
ASML’s extensive product portfolio is closely aligned with its customers' strategic goals, allowing it to deliver cost-efficient solutions tailored to various applications. This alignment positions ASML well to capitalize on key global trends, such as the rapid adoption of AI, the energy transition and other megatrends reshaping the electronics industry. These developments are expected to drive substantial growth across the semiconductor market as the demand for advanced chips continues to soar.
ASML is benefiting from a wave of new semiconductor fabs being built worldwide. The company has secured orders from many of these new facilities. ASML's ongoing efforts to boost capacity and meet rising customer demand, with the backing of its supply-chain partners, are positive signals for long-term growth.
Conclusion: Hold ASML Stock for Now
In light of the current challenges — margin pressures from High NA EUV systems, geopolitical risks and macroeconomic uncertainties — holding ASML stock seems to be the most prudent course of action. While the short-term outlook may be difficult, the company's long-term prospects remain solid, driven by its essential role in semiconductor manufacturing and continued innovation. Investors should wait for more clarity on market conditions before making any new moves.
ASML currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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