ASML Stock Plunges 17% on Q3 Earnings Miss and Lowered Outlook

ASML Holding (NASDAQ:ASML) shares gained over 6% intra-day today after the semiconductor equipment giant delivered a stellar fourth-quarter performance, surpassing expectations with record net sales of €9.3 billion.

The company’s revenue exceeded its prior forecasts, supported by a robust gross margin of 51.7% and net income of €2.7 billion for the quarter. A key driver of this growth was the expansion of system upgrades and the successful revenue recognition from two High-NA EUV systems, a cutting-edge lithography technology critical for next-generation semiconductor fabrication. Additionally, ASML completed the shipment of a third High-NA EUV system before year-end, further solidifying its market leadership.

For the full year, ASML generated net sales of €28.3 billion, slightly improving upon the €27.6 billion reported in 2023, while maintaining a steady gross margin of 51.3%. Annual net income climbed to €7.6 billion. Although the company shipped fewer lithography systems in 2024—380 compared to 421 in the previous year—strong demand for EUV systems and increased service-related revenue helped offset the decline.

Looking ahead, ASML is forecasting 2025 net sales between €30 billion and €35 billion, with gross margins expected to range from 51% to 53%. For the first quarter, the company anticipates revenue between €7.5 billion and €8.0 billion, alongside a gross margin of 52% to 53%.

ASML Holding N.V. (NASDAQ:ASML) is a key player in the semiconductor industry, known for its advanced lithography machines used in chip manufacturing. As the leading supplier of equipment for computer chip production, ASML plays a crucial role in the tech supply chain. Its main competitors include companies like Nikon and Canon, but ASML's focus on extreme ultraviolet (EUV) technology sets it apart.

ASML is set to release its quarterly earnings on January 29, 2025, with Wall Street analysts estimating earnings per share of $7.59 and projected revenue of $9.47 billion. The company's strong performance is expected to be driven by high demand for AI chips and robust industry growth, as highlighted by Seeking Alpha. This positive outlook is supported by record sales growth from Taiwan Semiconductor Manufacturing Company and impressive earnings from Foxconn.

Investors are particularly interested in ASML's AI-dependent growth outlook for 2025, especially in light of recent concerns triggered by China's DeepSeek. This low-cost AI chatbot has caused a selloff, raising questions about tech giants' spending on AI capabilities. Despite these concerns, ASML's consistent history of surpassing profit expectations and potential for margin growth make it an attractive investment opportunity.

ASML faces additional uncertainty due to potential export restrictions from U.S. President Donald Trump on its older DUV product lines to China. However, analysts are primarily focused on the company's orders for advanced EUV tools, crucial for AI chip circuitry. Bernstein analyst Sara Russo notes that investors seek confirmation that ASML's bookings align with its 2025 guidance and that the company is building a backlog for growth into 2026.

ASML's financial metrics provide further insight into its market position. With a price-to-earnings (P/E) ratio of 37.16 and a price-to-sales ratio of 9.67, the market values ASML's earnings and revenue highly. The company's enterprise value to sales ratio of 9.66 and enterprise value to operating cash flow ratio of 52.61 highlight its valuation relative to cash flow. Additionally, ASML's debt-to-equity ratio of 0.29 and current ratio of 1.55 indicate a strong financial position with good liquidity.

ASML Holdings (NASDAQ:ASML) experienced a 7% intra-day drop in its shares following the announcement of first-quarter sales for fiscal 2024 that did not meet expectations. The company reported net sales of 5.29 billion euros, which fell short of the expected 5.39 billion euros. However, its net profit reached 1.22 billion euros, surpassing the forecasted 1.07 billion euros.

Year-over-year comparisons show a 21.6% decrease in net sales and a significant 37.4% reduction in net income. A notable concern was the net bookings for ASML’s equipment, a critical indicator of future revenues, which totaled 3.61 billion euros. This figure represents a 4% decrease from the previous year and a significant decline from the prior quarter, falling well below the expected 4.63 billion euros.

Despite these challenges, ASML maintained its annual sales forecast at 27.6 billion euros, the same as the previous year, and anticipates stronger performance in the second half of 2024, aligning with the broader industry recovery from the downturn. CEO Peter Wennink described 2024 as a transitional year, emphasizing ongoing investments in capacity ramp-up and technology to prepare for an anticipated market upturn.

ASML also highlighted the necessity to secure around 4 billion euros in orders each subsequent quarter to achieve its 35 billion euros revenue goal for the year, indicating the company’s strategic focus on meeting these targets amidst current challenges.

Following weaker guidance, ASML Holding (NASDAQ:ASML) saw a more than 2% drop in its stock price in pre-market after reporting lower-than-expected orders, leading to a cautious sales forecast for the next year.

This caution arises from clients conserving cash due to economic uncertainties. While the company acknowledges that the semiconductor industry may have reached a trough, the uncertainty surrounding the shape of the demand recovery is causing customers to be cautious. Chief Financial Officer Roger Dassen noted that customers are exercising prudence with cash and capital expenditures, which is reflected in their order placements.

The company's net profit for the three months ending on September 30 was 1.9 billion euros, in line with analysts' expectations. However, net bookings were significantly lower at 2.6 billion euros compared to the third-quarter sales of 6.7 billion euros. Revenues came in at 6.67 billion euros, missing the Street estimate of 7.31 billion euros.

Despite the cautious outlook for 2024, ASML maintains a robust order backlog of 35 billion euros, and the company expects a more favorable 2025, given its customers' expansion plans across Asia, the United States, and Europe.

ASML Holdings (NASDAQ:ASML) shares fell more than 1% pre-market today due to concerns raised by TF International Securities' analysts, who believe that the company will likely make significant reductions in its EUV equipment shipment forecasts for 2024, possibly by 20-30%.

The analysts’ warning is based on several factors, including lower expected demand for Apple's 3nm chips in 2024, reduced demand for Qualcomm's 3nm chips due to Huawei's chip sourcing halt, lower-than-expected demand for Samsung's and Intel's chips, and delays in memory expansion plans by Samsung, Micron, and SK Hynix, now expected to happen between 2025 and 2027.

ASML Holdings (NASDAQ:ASML) shares fell more than 1% pre-market today due to concerns raised by TF International Securities' analysts, who believe that the company will likely make significant reductions in its EUV equipment shipment forecasts for 2024, possibly by 20-30%.

The analysts’ warning is based on several factors, including lower expected demand for Apple's 3nm chips in 2024, reduced demand for Qualcomm's 3nm chips due to Huawei's chip sourcing halt, lower-than-expected demand for Samsung's and Intel's chips, and delays in memory expansion plans by Samsung, Micron, and SK Hynix, now expected to happen between 2025 and 2027.