Has This Leading Tech Stock Halted the AI Surge?

Key Points

• ASML Holding is the world's dominant manufacturer of extreme ultraviolet (UV) lithography machines, which are needed to mass-produce computer chips.
• ASML Holding controls more than a 90% market share of the photolithography market.
• ASML lowered Q3 2024 revenue guidance but reaffirmed full-year 2024 guidance.

ASML Holding N.V. NASDAQ: ASML designs and manufactures extreme ultraviolet (EUV) lithography machines that use light to precision print microscopic patterns on silicon wafers. These gigantic 330,000-pound machines are used to mass-produce the world’s computer chips. ASML is often the barometer of the health of the semiconductor industry. Their lithography machines must be ordered two years in advance, and they take nearly 250 shipping containers to deliver weighing as much as two Airbus A320s. The company just released its Q2 2024 earnings report with accompanying lowered Q3 2024 revenue guidance, sending shares lower by over 20% in the following days. This also caused the rest of the semiconductor stocks to sell off. Investors are mulling whether the sell-off will crimp the AI Boom.

ASML operates in the computer and technology sector. The company is the apex predator with virtually no other competitors and a near-monopoly on EUV lithography machines. ASML supplies its machines to the world's leading chip manufacturers, including Intel Co. NASDAQ: INTC, Taiwan Semiconductor Manufacturing Co. Ltd. NYSE: TSM, and Samsung Electronics Co. OTCMKTS: SSNLF.

ASML Owns a Near-Monopoly in the Photolithography Market

In the semiconductor industry, there are hands-down dominant players. For example, Taiwan Semiconductor Manufacturing Co., often referred to as just Taiwan Semi, has a 62% market share of the world’s computer chip production. NVIDIA dominates the AI chip market with nearly 90% market share. However, one company has an even tighter lock in its segment, EUV lithography.  

Thanks to the mind-numbing barriers to entry, ASML commands more than a 90% market share in the global photolithography market. This company is so dominant that it has to comply with various nations' export controls, especially those pertaining to Chinese sales.

ASML Stock Triggers a Rising Wedge Breakdown

The daily candlestick chart on ASML illustrates a rising wedge breakdown that was triggered on its Q2 2024 earnings release. The rising wedge is comprised of converging upper and lower trendlines. The breakdown occurs when shares fall below the lower ascending trendline. ASML triggered the gap down from $1,060 to $979.99 on July 17, 2024. Shares continued to sell off for the next two days as sellers continued to unwind positions amidst the macro market sell-off in technology stocks gathered steam. The daily relative strength index (RSI) is falling toward the oversold 30-band. Pullback support levels are at $880.59, $826.50, $778.67, and $751.69.

ASML's Q2 Outperformance and Adjusted Q3 Expectations

ASML reported a Q2 2024 EPS of $4.46, beating consensus estimates by 34 cents. Revenue fell 9.5% YoY to $6.91 billion, beating the $6.66 billion consensus estimates. Gross margin was 51.5%, and net income of $1.78 billion. ASML expanded its booking by 23.7% YoY to $6.06 billion.

ASML issued weaker-than-expected downside revenue guidance for Q3 2024 of $7.44 billion to $8.11 billion versus $8.41 billion consensus estimates. Gross margins are expected to be between 50% and 51%. ASML expects R&D costs to be around $1.2 billion and SG&A costs to be around $322 million.

However, ASML reaffirmed its outlook for the full year 2024. According to consensus estimates, it expects 2024 to see revenues of $30 billion versus $29.97 billion, similar to those in 2023.

AI Is Not Slowing Down But Ramping Up

Investors fearing that AI has run its course can relax. ASML CEO Christopher Fouquet put those fears to rest as he commented, “Our outlook for the full year 2024 remains unchanged. We see 2024 as a transition year with continued investments in both capacity ramp and technology. We currently see strong developments in AI, driving most of the industry recovery and growth ahead of other market segments.” Fouquet also commented that overall semiconductor inventory levels continue to improve. AI is driving most of the industry’s recovery and growth. Memory end markets may see memory clients look to upgrade their systems in preparation for an anticipated surge in 2025.

ASML Holding N.V. analyst ratings and price targets are at MarketBeat. There are 12 analyst ratings comprised of one Strong Buy, nine Buys, and two Holds, with a consensus price target 28% higher at $1,147.80.