Global chip stock prices have collectively declined this week amid rising geopolitical conflicts
The stock of Dutch chipmaker ASML Holdings (AMS ASML) fell more than 10% on Wednesday, despite earnings and sales exceeding consensus estimates for Q2.
The decline came amid comments from former president Donald Trump, who said that Taiwan should pay for US defense. This heightened geopolitical tensions, and squeezed global chip stocks.
The rumored prospect that further US restrictions would limit exports to China was another aggravating factor.
ASML Earnings Snapshot
ASML Earnings Snapshot
ASML reported net sales on Wednesday of 6,24 billion euros ($6,8 billion) and a net profit of 1,58 billion euro ($1,74 billion), exceeding the consensus estimates of 6,03 billion euros and 1,43 billion dollars, respectively.
The Dutch company’s net sales fell by 9.5% on an annual basis, while its net income dropped 18.7%. The company had previously estimated that its second-quarter sales would range between 5.7 billion and 6.2 billion euro.
ASML reported new bookings for Q2 of 5.6 billion Euros, compared to 3.6 in the first quarter. This represents a 24% increase year-on-year. Analysts had expected new bookings to be around 5 billion euros in Q2.
Analysts expected the chipmaker to forecast revenue of 7.6 billion euro for the third quarter. ASML’s full-year outlook remains unchanged.
In a press release, ASML CEO Christophe Fouquet said that, “While there are still uncertainties on the market, driven primarily by the macro-environment, we expect the industry recovery to continue into the second half of this year.”
ASML’s shares fell by almost 11% on Tuesday, despite the fact that it beat its earnings, revenue and new bookings expectations. The drop is primarily due to a Bloomberg article published on Tuesday which stated that the U.S. had informed its allies including the Netherlands that it could take unilateral action to restrict exports of chip-equipment to China.
Investors were concerned about the earnings potential of ASML. The company is already prohibited from selling its advanced product lines to China. The Dutch company’s sales in Q2 and Q1 of 2024 will be 49% higher in China than they were in Q2 2018.
Earlier, the company stated that export restrictions introduced at the beginning of the year could affect 10% to 15 percent of its China sales in this year.
The U.S. is increasing pressure on China to curb its advances in the semiconductor sector. ASML, a company that has a monopoly over the manufacturing of machines that produce the most sophisticated semiconductors, appears to be a major part of the U.S. strategy.
The Netherlands banned ASML’s export of its second most advanced category of machines – immersion DUV lithography machine – to China at the beginning of the year. It is important to note that the Dutch company never received permission to sell its most advanced ultra violet technology to China.
ASML continues to provide services for machines that Chinese chip manufacturers purchased before the restrictions. Biden administration reportedly told its allies it could use the Foreign Direct Product Rule if the equipment manufacturer continues to practice such practices. The rule allows the U.S. impose controls on products made abroad that use even a tiny amount of American technology.
Despite geopolitical headwinds ASML stock has risen more than 35% in the past year, mainly due to the demand for high performance chips for AI applications. Fouquet, ASML’s CEO, said that even though AI is a relatively small portion of ASML’s revenues, it will grow significantly in the future.
He said that AI was driving the recovery and growth of most industries, putting other segments behind.
ASML’s technology is likely to be used by the world’s largest chipmakers, such as TSMC Intel and Samsung, who are developing new semiconductor manufacturing facilities.
We believe that even though geopolitical factors will continue for some time to drag ASML’s stock down, AI penetration will continue pushing the Dutch firm’s stock up. The company could also offset its losses in China by increasing sales in other markets, particularly in the U.S.
The current drop in ASML could be a good entry for investors who intend to hold the stock for the long-term.
This site is intended for entertainment only and does NOT offer financial advice.
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