< BackASML Guidance Miss Expectation, but LT outlook positive, Rally on track
The monopoly of high-end lithography units-- ASML ASML, as the monopoly of high-end lithography units, is the sole equipment provider for advanced chips, especially 3nm or smaller. As of today, no other substitutes have arrived on the market. Therefore, it has a unique position in the semiconductor market. The cutting-edge products—EUV has brought in 90 billion of revenue for ASML in 2023. In the future, more advanced EUV will be needed to make smaller and smaller chips. With limited competition, ASML has high pricing power, which would be a major growth source. AI growth is in the early stage and other end-use markets such as handsets, PCs, networking etc. are almost at the end of the downturn cycle, the semiconductor market trend remains promising, which would drive ASML revenue growth continuously in the future. One piece of the evidence is that the order book has increased. Moreover, TSMC is expected to place EUV orders no later than the end of 2024, to carry out its plan of 2nm chip mass production plan. We expect the increase in TSMC order to positively impact on 2025 EPS. ASML 24Q2 exceeds expectations ASML 24Q2 Result Summary
Revenue of €6.24 billion (QoQ +18.0%, YoY -9.6%), which is higher than both our estimation of €5.98 billion, and consensus estimation of €6.07 billion
Gross Margin of 51.5% (QoQ +0.5pp, YoY +0.1pp)
EPS of €4.01 (QoQ +29.0%, YoY -18.6%), which is higher than both our estimation of €3.68, and consensus estimation of €3.70
Revenue of €6.24 billion mostly comes from lithography unit sales. The primary reason of ASML 24Q2 revenue beating our expectation is Immersion DUV unit sales quarter-over-quarter to increase significantly. However, only 8 EUV shipments were recognized in 24Q2. This shows advanced process logic customers are absorbing the increased capacity in 2023. Regarding profitability, a higher share of Immersion DUV sales also helped ASML 24Q2 gross margin attain 51.5%, exceeding expectations. This boosted ASML 24Q2 EPS to €4.01. ASML 24Q2 order intake rises above the target The key metric of ASML future earnings expectations is the order book. To ensure 2025 is fully booked, ASML mentioned in the 24Q1 earnings call, that €4 billion order intake in each of the remaining three quarters in 2024 are required. Therefore, the €5.57 billion new orders intakes in 24Q2, are not only significantly higher than 24Q1, but also surpass the €4 billion target. It includes €2.5 billion EUV orders, greater than the 660 million orders in 24Q1. After accounting for shipments delivered in 24Q2, the total order backlog increased €1 billion quarter-over-quarter, reaching 39 billion, showing strong market demand. ASML 24Q3 Guidance Miss Expectations, though Earnings may trend upwards Looking forward to 24Q3, ASML expects its revenue to reach €6.7 billion to €7.3 billion. The sales of its lithography units are anticipated to be €5.3 billion to €5.9 billion. Gross margin would remain between 50~51%, demonstrating high profitability. This outlook was not a massive beat of market expectations. Moreover, due to the EUV shipments in 24Q2 being lower than expected, we think 24Q3 EUV shipments is likely to be slower than our previous expectations. Therefore, we lower ASML’s 24Q3 revenue forecast by 7.8% to €7.11 billion representing a quarter-over-quarter increase of 13.9% and a year-over-year increase of 6.6%, EPS forecast reduced by 14.6% to €4.72, reflecting a quarter-over-quarter increase of 17.8% and a year-over-year decrease of 1.8%. ASML expects 2024 to be a transitional year For the full year 2024, ASML's flattish outlook remains identical to 24Q1. The company expects its revenue from logic chip customers to be slightly lower than that in 2023, as customers continue to absorb the additional capacity built. On the memory chip side, revenue for 2024 is expected to grow compared to 2023, mainly driven by the transition to advanced DRAM technology nodes, including DDR5 and High Bandwidth Memory (HBM). Therefore, we continue to expect 2024 will be a transitional year for ASML. Although we lowered ASML's 24Q3 revenue expectations, as some of the EUV shipments originally scheduled for 24Q3 may be delayed to 24Q4, and due to better-than-expected revenue in 24Q2, we have only slightly revised down the full-year 2024 revenue estimate by 0.4% to Є27.38 billion, representing a year-over-year decrease of 0.6%. Furthermore, as ASML increases its capacity for the anticipated strong demand in 2025, its research and development expenses may accelerate faster. As a result, we lowered the ASML 2024 EPS estimate by 2.1% to €18.37, reflecting a year-over-year decrease of 7.7%. ASML 2025 EPS may rise to a new all-time High ASML predicts a significant upswing in 2025, the volume recovery of 24Q2 new orders intake is a positive sign. 73% of the new orders come from logic chip customers, indicating they already began the preparation of the next phase of capacity expansion, suggesting the anticipated upswing in 2025 is likely to materialize as expected. Furthermore, one of the largest customers of ASML, TSMC, announced a 2nm chip mass production plan during the 24Q1 conference call. As TSMC has no plans for utilizing High-NA EUV in 2024 and 2025, we continue to expect TSMC EUV orders to come through in 24Q3 to 24Q4. This expectation is based on the fact that EUV lead times range from 16 to 20 months. Looking at ASML regional revenue figures of 2024’s first half, almost half come from China. This raised concerns for ASML’s revenue stability. Though the US government is considering imposing more trade restrictions on the chip industry related to China, we expect the impact on ASML is limited. ASML’s EUV and most immersion DUV machines are banned from shipping to China. This should have effectively hindered China’s development of advance process. Manufacturing advanced process chip by multi-patterning would lead to higher cost and lower yields. SMIC’s net profit margin has been severely affected by producing 7nm chips for Huawei at unsustainable costs. Its net income dropped by 68.9% year-over-year to $71.8 million. If SMIC is going to produce 5nm AI chip Huawei, its net profit margin could decline to below 5%, potentially leading to losses. Expanding the trade restrictions to less advanced dry DUV machines may not significantly impact China’s ability to acquire advanced technology. Therefore, ASML’s upgrades and maintenance service in China are the most likely trade restrictions, while the sales of lithography machines could remain stable. Therefore, even though 24Q3 revenue guidance is below expectations, considering ASML order intake rises, TSMC EUV orders are expected to come through in 2024 second half and the impact of trade restrictions should be limited, we revised up the 2025 revenue estimate by 7.4% to €40.00 billion, representing a 46.1% year-over-year increase, the EPS estimate has also been revised up by 8.0% to €30.93, which reflects a substantial 68.3% increase from 2024, setting a new all-time high. ASML near-term headwind creates an opportunity to buy We issue a buy rating for ASML because we discovered ASML future revenue growth will be better than the consensus expects. Our view is more positive than consensus, which motivates me to forecast ASML 2025 EPS at $33.71, which puts me 3.1% above consensus. In addition, we believe ASML’s relative valuation multiple will maintain at the current 80% premium to the market. Applying an 80% to the market multiple to our $33.71 EPS estimate for 2025, results in a one-year price target of $1,247 which is 35.8% above yesterday’s close.
< BackASML Guidance Miss Expectation, but LT outlook positive, Rally on track
The monopoly of high-end lithography units-- ASML ASML, as the monopoly of high-end lithography units, is the sole equipment provider for advanced chips, especially 3nm or smaller. As of today, no other substitutes have arrived on the market. Therefore, it has a unique position in the semiconductor market. The cutting-edge products—EUV has brought in 90 billion of revenue for ASML in 2023. In the future, more advanced EUV will be needed to make smaller and smaller chips. With limited competition, ASML has high pricing power, which would be a major growth source. AI growth is in the early stage and other end-use markets such as handsets, PCs, networking etc. are almost at the end of the downturn cycle, the semiconductor market trend remains promising, which would drive ASML revenue growth continuously in the future. One piece of the evidence is that the order book has increased. Moreover, TSMC is expected to place EUV orders no later than the end of 2024, to carry out its plan of 2nm chip mass production plan. We expect the increase in TSMC order to positively impact on 2025 EPS. ASML 24Q2 exceeds expectations ASML 24Q2 Result Summary
Revenue of €6.24 billion (QoQ +18.0%, YoY -9.6%), which is higher than both our estimation of €5.98 billion, and consensus estimation of €6.07 billion
Gross Margin of 51.5% (QoQ +0.5pp, YoY +0.1pp)
EPS of €4.01 (QoQ +29.0%, YoY -18.6%), which is higher than both our estimation of €3.68, and consensus estimation of €3.70
Revenue of €6.24 billion mostly comes from lithography unit sales. The primary reason of ASML 24Q2 revenue beating our expectation is Immersion DUV unit sales quarter-over-quarter to increase significantly. However, only 8 EUV shipments were recognized in 24Q2. This shows advanced process logic customers are absorbing the increased capacity in 2023. Regarding profitability, a higher share of Immersion DUV sales also helped ASML 24Q2 gross margin attain 51.5%, exceeding expectations. This boosted ASML 24Q2 EPS to €4.01. ASML 24Q2 order intake rises above the target The key metric of ASML future earnings expectations is the order book. To ensure 2025 is fully booked, ASML mentioned in the 24Q1 earnings call, that €4 billion order intake in each of the remaining three quarters in 2024 are required. Therefore, the €5.57 billion new orders intakes in 24Q2, are not only significantly higher than 24Q1, but also surpass the €4 billion target. It includes €2.5 billion EUV orders, greater than the 660 million orders in 24Q1. After accounting for shipments delivered in 24Q2, the total order backlog increased €1 billion quarter-over-quarter, reaching 39 billion, showing strong market demand. ASML 24Q3 Guidance Miss Expectations, though Earnings may trend upwards Looking forward to 24Q3, ASML expects its revenue to reach €6.7 billion to €7.3 billion. The sales of its lithography units are anticipated to be €5.3 billion to €5.9 billion. Gross margin would remain between 50~51%, demonstrating high profitability. This outlook was not a massive beat of market expectations. Moreover, due to the EUV shipments in 24Q2 being lower than expected, we think 24Q3 EUV shipments is likely to be slower than our previous expectations. Therefore, we lower ASML’s 24Q3 revenue forecast by 7.8% to €7.11 billion representing a quarter-over-quarter increase of 13.9% and a year-over-year increase of 6.6%, EPS forecast reduced by 14.6% to €4.72, reflecting a quarter-over-quarter increase of 17.8% and a year-over-year decrease of 1.8%. ASML expects 2024 to be a transitional year For the full year 2024, ASML's flattish outlook remains identical to 24Q1. The company expects its revenue from logic chip customers to be slightly lower than that in 2023, as customers continue to absorb the additional capacity built. On the memory chip side, revenue for 2024 is expected to grow compared to 2023, mainly driven by the transition to advanced DRAM technology nodes, including DDR5 and High Bandwidth Memory (HBM). Therefore, we continue to expect 2024 will be a transitional year for ASML. Although we lowered ASML's 24Q3 revenue expectations, as some of the EUV shipments originally scheduled for 24Q3 may be delayed to 24Q4, and due to better-than-expected revenue in 24Q2, we have only slightly revised down the full-year 2024 revenue estimate by 0.4% to Є27.38 billion, representing a year-over-year decrease of 0.6%. Furthermore, as ASML increases its capacity for the anticipated strong demand in 2025, its research and development expenses may accelerate faster. As a result, we lowered the ASML 2024 EPS estimate by 2.1% to €18.37, reflecting a year-over-year decrease of 7.7%. ASML 2025 EPS may rise to a new all-time High ASML predicts a significant upswing in 2025, the volume recovery of 24Q2 new orders intake is a positive sign. 73% of the new orders come from logic chip customers, indicating they already began the preparation of the next phase of capacity expansion, suggesting the anticipated upswing in 2025 is likely to materialize as expected. Furthermore, one of the largest customers of ASML, TSMC, announced a 2nm chip mass production plan during the 24Q1 conference call. As TSMC has no plans for utilizing High-NA EUV in 2024 and 2025, we continue to expect TSMC EUV orders to come through in 24Q3 to 24Q4. This expectation is based on the fact that EUV lead times range from 16 to 20 months. Looking at ASML regional revenue figures of 2024’s first half, almost half come from China. This raised concerns for ASML’s revenue stability. Though the US government is considering imposing more trade restrictions on the chip industry related to China, we expect the impact on ASML is limited. ASML’s EUV and most immersion DUV machines are banned from shipping to China. This should have effectively hindered China’s development of advance process. Manufacturing advanced process chip by multi-patterning would lead to higher cost and lower yields. SMIC’s net profit margin has been severely affected by producing 7nm chips for Huawei at unsustainable costs. Its net income dropped by 68.9% year-over-year to $71.8 million. If SMIC is going to produce 5nm AI chip Huawei, its net profit margin could decline to below 5%, potentially leading to losses. Expanding the trade restrictions to less advanced dry DUV machines may not significantly impact China’s ability to acquire advanced technology. Therefore, ASML’s upgrades and maintenance service in China are the most likely trade restrictions, while the sales of lithography machines could remain stable. Therefore, even though 24Q3 revenue guidance is below expectations, considering ASML order intake rises, TSMC EUV orders are expected to come through in 2024 second half and the impact of trade restrictions should be limited, we revised up the 2025 revenue estimate by 7.4% to €40.00 billion, representing a 46.1% year-over-year increase, the EPS estimate has also been revised up by 8.0% to €30.93, which reflects a substantial 68.3% increase from 2024, setting a new all-time high. ASML near-term headwind creates an opportunity to buy We issue a buy rating for ASML because we discovered ASML future revenue growth will be better than the consensus expects. Our view is more positive than consensus, which motivates me to forecast ASML 2025 EPS at $33.71, which puts me 3.1% above consensus. In addition, we believe ASML’s relative valuation multiple will maintain at the current 80% premium to the market. Applying an 80% to the market multiple to our $33.71 EPS estimate for 2025, results in a one-year price target of $1,247 which is 35.8% above yesterday’s close.
< BackASML Guidance Miss Expectation, but LT outlook positive, Rally on track
The monopoly of high-end lithography units-- ASML ASML, as the monopoly of high-end lithography units, is the sole equipment provider for advanced chips, especially 3nm or smaller. As of today, no other substitutes have arrived on the market. Therefore, it has a unique position in the semiconductor market. The cutting-edge products—EUV has brought in 90 billion of revenue for ASML in 2023. In the future, more advanced EUV will be needed to make smaller and smaller chips. With limited competition, ASML has high pricing power, which would be a major growth source. AI growth is in the early stage and other end-use markets such as handsets, PCs, networking etc. are almost at the end of the downturn cycle, the semiconductor market trend remains promising, which would drive ASML revenue growth continuously in the future. One piece of the evidence is that the order book has increased. Moreover, TSMC is expected to place EUV orders no later than the end of 2024, to carry out its plan of 2nm chip mass production plan. We expect the increase in TSMC order to positively impact on 2025 EPS. ASML 24Q2 exceeds expectations ASML 24Q2 Result Summary
Revenue of €6.24 billion (QoQ +18.0%, YoY -9.6%), which is higher than both our estimation of €5.98 billion, and consensus estimation of €6.07 billion
Gross Margin of 51.5% (QoQ +0.5pp, YoY +0.1pp)
EPS of €4.01 (QoQ +29.0%, YoY -18.6%), which is higher than both our estimation of €3.68, and consensus estimation of €3.70
Revenue of €6.24 billion mostly comes from lithography unit sales. The primary reason of ASML 24Q2 revenue beating our expectation is Immersion DUV unit sales quarter-over-quarter to increase significantly. However, only 8 EUV shipments were recognized in 24Q2. This shows advanced process logic customers are absorbing the increased capacity in 2023. Regarding profitability, a higher share of Immersion DUV sales also helped ASML 24Q2 gross margin attain 51.5%, exceeding expectations. This boosted ASML 24Q2 EPS to €4.01. ASML 24Q2 order intake rises above the target The key metric of ASML future earnings expectations is the order book. To ensure 2025 is fully booked, ASML mentioned in the 24Q1 earnings call, that €4 billion order intake in each of the remaining three quarters in 2024 are required. Therefore, the €5.57 billion new orders intakes in 24Q2, are not only significantly higher than 24Q1, but also surpass the €4 billion target. It includes €2.5 billion EUV orders, greater than the 660 million orders in 24Q1. After accounting for shipments delivered in 24Q2, the total order backlog increased €1 billion quarter-over-quarter, reaching 39 billion, showing strong market demand. ASML 24Q3 Guidance Miss Expectations, though Earnings may trend upwards Looking forward to 24Q3, ASML expects its revenue to reach €6.7 billion to €7.3 billion. The sales of its lithography units are anticipated to be €5.3 billion to €5.9 billion. Gross margin would remain between 50~51%, demonstrating high profitability. This outlook was not a massive beat of market expectations. Moreover, due to the EUV shipments in 24Q2 being lower than expected, we think 24Q3 EUV shipments is likely to be slower than our previous expectations. Therefore, we lower ASML’s 24Q3 revenue forecast by 7.8% to €7.11 billion representing a quarter-over-quarter increase of 13.9% and a year-over-year increase of 6.6%, EPS forecast reduced by 14.6% to €4.72, reflecting a quarter-over-quarter increase of 17.8% and a year-over-year decrease of 1.8%. ASML expects 2024 to be a transitional year For the full year 2024, ASML's flattish outlook remains identical to 24Q1. The company expects its revenue from logic chip customers to be slightly lower than that in 2023, as customers continue to absorb the additional capacity built. On the memory chip side, revenue for 2024 is expected to grow compared to 2023, mainly driven by the transition to advanced DRAM technology nodes, including DDR5 and High Bandwidth Memory (HBM). Therefore, we continue to expect 2024 will be a transitional year for ASML. Although we lowered ASML's 24Q3 revenue expectations, as some of the EUV shipments originally scheduled for 24Q3 may be delayed to 24Q4, and due to better-than-expected revenue in 24Q2, we have only slightly revised down the full-year 2024 revenue estimate by 0.4% to Є27.38 billion, representing a year-over-year decrease of 0.6%. Furthermore, as ASML increases its capacity for the anticipated strong demand in 2025, its research and development expenses may accelerate faster. As a result, we lowered the ASML 2024 EPS estimate by 2.1% to €18.37, reflecting a year-over-year decrease of 7.7%. ASML 2025 EPS may rise to a new all-time High ASML predicts a significant upswing in 2025, the volume recovery of 24Q2 new orders intake is a positive sign. 73% of the new orders come from logic chip customers, indicating they already began the preparation of the next phase of capacity expansion, suggesting the anticipated upswing in 2025 is likely to materialize as expected. Furthermore, one of the largest customers of ASML, TSMC, announced a 2nm chip mass production plan during the 24Q1 conference call. As TSMC has no plans for utilizing High-NA EUV in 2024 and 2025, we continue to expect TSMC EUV orders to come through in 24Q3 to 24Q4. This expectation is based on the fact that EUV lead times range from 16 to 20 months. Looking at ASML regional revenue figures of 2024’s first half, almost half come from China. This raised concerns for ASML’s revenue stability. Though the US government is considering imposing more trade restrictions on the chip industry related to China, we expect the impact on ASML is limited. ASML’s EUV and most immersion DUV machines are banned from shipping to China. This should have effectively hindered China’s development of advance process. Manufacturing advanced process chip by multi-patterning would lead to higher cost and lower yields. SMIC’s net profit margin has been severely affected by producing 7nm chips for Huawei at unsustainable costs. Its net income dropped by 68.9% year-over-year to $71.8 million. If SMIC is going to produce 5nm AI chip Huawei, its net profit margin could decline to below 5%, potentially leading to losses. Expanding the trade restrictions to less advanced dry DUV machines may not significantly impact China’s ability to acquire advanced technology. Therefore, ASML’s upgrades and maintenance service in China are the most likely trade restrictions, while the sales of lithography machines could remain stable. Therefore, even though 24Q3 revenue guidance is below expectations, considering ASML order intake rises, TSMC EUV orders are expected to come through in 2024 second half and the impact of trade restrictions should be limited, we revised up the 2025 revenue estimate by 7.4% to €40.00 billion, representing a 46.1% year-over-year increase, the EPS estimate has also been revised up by 8.0% to €30.93, which reflects a substantial 68.3% increase from 2024, setting a new all-time high. ASML near-term headwind creates an opportunity to buy We issue a buy rating for ASML because we discovered ASML future revenue growth will be better than the consensus expects. Our view is more positive than consensus, which motivates me to forecast ASML 2025 EPS at $33.71, which puts me 3.1% above consensus. In addition, we believe ASML’s relative valuation multiple will maintain at the current 80% premium to the market. Applying an 80% to the market multiple to our $33.71 EPS estimate for 2025, results in a one-year price target of $1,247 which is 35.8% above yesterday’s close.