ASML Sees Demand For Chips Rallying This Year, Boosts Sales View

Key Points

• ASML put concerns about China restrictions to rest, beating Wall Street views for the fourth quarter. It also boosted guidance for the current quarter.
• The company said it sees revenue growing by at least 25% this year.
• The stock has been traveling higher in January, getting support well above longer- and shorter-term moving averages.
• Since ASML's earnings report, two analysts boosted their price targets on the stock. 

Not long ago, analysts fretted that chip equipment makers, such as ASML Holding N.V. NASDAQ: ASML would face steep revenue declines because of restricted trade with China.

ASML recently restated those concerns by beating Wall Street views for fourth-quarter earnings and sales. It also boosted its guidance for the current quarter.

The Netherlands-based mega-cap reported a net income of $4.92 per share on revenue of $6.883 billion. Researcher FactSet’s said the consensus estimate called for earnings of $4.62 per share on revenue of $6.74 billion. 

For the current quarter, the company guided toward revenue significantly higher than the $6.46 billion Wall Street was expecting.  ASML said it sees this year’s net sales increasing more than 25% year-over-year.

In the earnings release, company CEO Peter Wennink said, “We continue to see uncertainty in the market caused by inflation, rising interest rates, risk of recession and geopolitical developments related to export controls. However, our customers indicate that they expect the market to rebound in the second half of the year. Considering our order lead times and the strategic nature of lithography investments, demand for our systems, therefore, remains strong.”

Robust Sales Growth Despite China Restrictions

In interviews following the report, Wennink noted that restrictions of sales into China should not hamper ASML’s ability to grow revenue at the estimated rate. 

In his statement, Wennink alluded to concerns about a weakening global chip market, as consumer demand for electronics is down from sky-high pandemic levels. 

However, analysts are forecasting that demand for artificial intelligence chips for military use and many commercial applications will contribute to the overall industry growth rate. 

Based on the recent performance of the iShares Semiconductor ETF NYSEARCA: SOXX, institutional investors also see promise in the semiconductor industry. That ETF, which tracks a basket of 30 large-cap chipmakers and chip-equipment makers, is up 17.74% this month, outpacing the S&P 500 and the Nasdaq 100, which are up 6.06% and 7.96%, respectively. 

MarketBeat earnings data for ASML show a history of beating bottom-line views, going back to January 2019.

ASML makes precision lithography machines used in the manufacturing of semiconductors. Its customers include Intel Corporation NASDAQ: INTC and Taiwan Semiconductor Manufacturing Company Limited NYSE: TSM.

ASML shares rose 1.72% following the news and added 0.35% in the following session, closing at $683.90 on January 26.

Bullish Moving-Average Crossover

The stock was already making its way higher from a December 28 interim low of $529.01. Its 50-day moving average crossed above the 200-day line in late December, signaling the continuation of a bullish trend. Many traders call that signal the “golden cross” as it can often lead to price gains, which happened in ASML’s case. 

ASML shares rose 9.05% the week ending January 6, finishing 6.6% above its 50-day average, then traveling higher well above its short-term 10-day average until pulling back to find support there the week ending January 20. 

Moving average support is a sign that institutional investors are holding their positions in a stock. As of yet, there hasn’t been a large round of profit-taking following ASML’s one-month gain of 24.04%. However, that’s about the level where a rally can take a breather before resuming, so investors may want to proceed with caution at this point. 

According to analyst data compiled by MarketBeat, the consensus rating on ASML is “moderate-buy” with a price target of $803.67, a potential upside of 17.51%. If that occurs in the next 12 to 18 months, that would be consistent with tradeable rallies and moving-average pullbacks, a common upward trajectory for a large stock like this.

Since the company’s quarterly report, two analysts boosted their price targets on ASML.