- ASML Q2 net sales of €6.24B and net profit of €1.58B beat consensus estimates
- ASML stock dropped 8% due to potential new U.S. restrictions on sales to China
- Despite headwinds, ASML stock is up 35% YTD, driven by AI chip demand
Global chip stocks have collectively suffered this week amid rising geopolitical tensions.
Dutch chipmaker ASML Holdings (NASDAQ:ASML) stock fell more than 10% Wednesday despite Q2 earnings and sales that beat consensus estimates.
The slump came amid comments by former president Donald Trump that Taiwan should pay the US for defense, deepening geopolitical tensions and squeezing global chip stocks as a result.
The rumored prospect of further US restrictions limiting exports to China was also an aggravating factor.
ASML Earnings Snapshot
On Wednesday, ASML reported net sales of 6.24 billion euros ($6.8 billion) and net profit of 1.58 billion euros ($1.74 billion), beating the consensus estimate of 6.03 billion euros and 1.43 billion euros, respectively.
Net sales for the Dutch company fell 9.5% year-on-year, while net income dropped by 18.7%. Previously, the company estimated its second-quarter net sales between 5.7 billion euros and 6.2 billion euros.
ASML reported new bookings of 5.6 billion euros for Q2, compared to 3.6 billion euros in the first quarter and an increase of 24% year-on-year. Analysts expected new bookings of about 5 billion euros for Q2.
For the third quarter, the company expects net sales of between 6.7 billion euros and 7.3 billion euros, while analysts expected the chip maker to give a revenue forecast of 7.6 billion euros. ASML has kept its full-year outlook unchanged.
“While there are still uncertainties in the market, primarily driven by the macro environment, we expect industry recovery to continue in the second half of the year,” said Christophe Fouquet, ASML CEO, in a statement.
Even though ASML beat earnings, revenue, and new bookings estimates, its shares were down by close to 11% on Wednesday. The dip is primarily linked to a Bloomberg report published on Tuesday, which said that the U.S. has informed its allies, including the Netherlands, that it may take unilateral action to limit exports of chip equipment to China.
This fueled investor concerns over the earnings potential of ASML, which is already restricted from selling most of its advanced product lines in China. The East Asian nation is an important market for the Dutch firm, accounting for 49% of its sales in both Q2 and Q1 2024.
Previously, the company said that export restrictions, which were introduced at the start of the year, could affect 10% to 15% of its China sales this year.
The U.S. is ratcheting pressure to curtail Chinese advances in the semiconductor industry, and ASML, which has a monopoly in manufacturing machines that produce the most advanced semiconductors, seems to be a key part of this U.S. plan.
At the start of the year, the Netherlands banned ASML from exporting its second-most advanced category of machinery—immersion DUV lithography machines—to China. It must be noted that the Dutch firm never received permission to export its most advanced extreme ultraviolet technology to China.
ASML still provides services to the machines that Chinese chip makers bought before the restrictions. The Biden administration has reportedly informed its allies that it may use the foreign direct product rule if the equipment maker continues such practices.
The rule allows the U.S. to impose controls on foreign-made products that use even a small amount of American technology.
Despite such geopolitical headwinds, ASML stock is up more than 35% YTD, driven primarily by the demand for high-powered chips needed for AI applications.
Even though AI accounts for a relatively small part of ASML revenues, it is expected to grow significantly going ahead, something that Fouquet, the company’s CEO, also hinted at.
“We currently see strong developments in AI, driving most of the industry's recovery and growth ahead of other market segments,” he said in a statement.
The world’s biggest chipmakers, including TSMC (NYSE:TSM), Intel (NASDAQ:INTC), and Samsung, are developing new semiconductor manufacturing plants that are likely to use ASML’s technology.
Even though geopolitical headwinds will continue to pull ASML stock down for some time, we believe AI penetration will continue to push the Dutch firm’s stock up. Moreover, the company could offset losses in China by increasing business in other markets, especially in the U.S.
Thus, the current drop in ASML stock could prove a good entry point for investors who plan to hold it for the long term.