Asml suffers in the stock market: the challenge on microchips is in the long run

Asml - in fact - manufactures lithography machinery. In particular, ultraviolet. This, in principle, can be divided - with reference to the different techniques - into two areas: Deep Ultraviolet Lithography (Dev) and Extreme Ultraviolet Lithography (Euv). In the first case, we are faced with the more traditional, not extreme frontier, approach - based for example on an ultraviolet wavelength of 193 nanometres (nm). The Euv, on the other hand - exploiting a much shorter wavelength (13.5 nm) - is suitable for supporting more 'pushed' technological productions (manufacture of chips even with gates at 2 nm). On closer inspection, the end markets of the two areas largely overlap. Both serve sectors such as: Memories (Dram and Nand), Advanced Logic (Cpu, Gpu, AI), IoT, Sensors, Automotive and Consumer Electronics. And yet, their role is different. Euv - in fact - is suited to more advanced contexts, allowing higher transistor density and lower costs. In other words: it is the driver - together with the 'solid' and proven Dev - on which the group is betting and which should enable business acceleration in the medium to long term.

True! The same company acknowledges that the demand for Euv is not so strong today. There is a slowdown in the transition to more sophisticated technological processes and this is causing the current slowdown. So much so that, by 2025, there will be fewer sales of Euv solutions. This being said, however, the indication is also that, on the one hand, customer enquiries and tests of the Hig Na Euv (the most advanced Euv) continue to be successful; and that, on the other hand, Ai, energy transition and electrification will continue. Which will inevitably push the advanced lithography systems segment. That is to say, those Euvs on which the multinational company has decided to focus strongly.

So far, some considerations on technology and short- and long-term prospects. However, the saver looks at further aspects. Among others: the geopolitical variable. In the third quarter of 2024, the geographical breakdown of turnover - by equipment location - was as follows: China generated 47% of sales; Japan and South Korea accounted for 2 and 15% of turnover respectively. The USA accounted for 21% of revenue. The remaining 15% is made in Taiwan. In other words: the island of Formosa, with the giant Tsmc, and the former Middle Kingdom are worth more than 60% of the business. The condition makes the nose twitch. Of course! When compared to the past - apart from the volatility of percentages very much linked to the sale of individual machines - the incidence of the areas in question is decreasing. Formosa Island, for example, was worth 24% of sales in Q3 2023. And yet - especially if one listens to the words of the newly elected US President Donald Trump - the risk of a military escalation by China to conquer Taiwan cannot be ascribed to the fantasy-political voice. The market - which does not believe in the hypothesis - does not price the scenario into quotations. The do-it-yourselfer, however, must take this into account. Just as he must consider the topic of the techno-trade battle between Washington and Beijing. On 2 December, the US Department of Commerce tightened the - already existing - restrictions on the export of machinery to China, in particular for the production of military-grade chips. The group - commenting on the further tightening - emphasised, on the one hand, that this implies no material impact on 2024; and, on the other hand, remarked that - with respect to 2025 - the new indications are in line with what was communicated with the third quarter. That is: sales between 30 and 35 billion are confirmed, while the business in China will be worth around 20 per cent of total net sales for the whole year. Beyond that, however, the do-it-yourselfer must - again - pay close attention to the topic at hand.

Against this background, what, then, is the stock's stock market outlook? According to Seeking Alpha, the non-GAAP P/e on 2024 - as of 19/12/2024- is 36.6 times (24.9 the median of the benchmark sector). The non-GAAP Peg is also higher than that of the sector. Price to sales for 2024, for its part, is just over 10 times (3.2 the comparison multiple). In other words: the stock - according to Seeking Alpha, which has a 'hold' rating - is expensive. By contrast, for the Bloomberg terminal 85.7 per cent of the consensus is 'buy' and the remaining 14.3 per cent 'hold'. Why? One can hazard a guess. Many investment banks - reasoning that the current weakness is also linked to contingent situations such as the difficulties of a customer like Intel - may assume that the future is not so bad. That said, it is essential to always use caution and carefully consider one's risk appetite.

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