ASML Holding (ASML -0.92%) Lesser known among tech investors. The Dutch-based company manufactures semiconductor manufacturing equipment, including extreme ultraviolet lithography (EUV) equipment.chip manufacturers such as taiwan semiconductor (TSMC) and Samsung use the equipment to manufacture cutting-edge chips.
Nonetheless, the stock experienced significant volatility last year and remains expensive even as investors sour on other semiconductor stocks. Investors may therefore wonder whether the critical green flags for ASML stock outweigh the critical red flags.
Green Flags: Dominance in Key Niche Markets
The cutting edge of the semiconductor industry is often focused on TSMC. According to TrendForce, TrendForce is responsible for more than half of the world’s third-party (foundry) chip production and is the technological leader in this field.
However, TSMC couldn’t maintain its lead without ASML. Despite Huawei’s recent patent filing, ASML remains the sole manufacturer of his EUV machine, at least in the West. In addition to TSMC’s support, ASML’s state-of-the-art technology enables manufacturing of state-of-the-art chips. NVIDIA, AMD, Qualcommand other possibilities.
Additionally, the industry is benefiting from the growing need for semiconductors as artificial intelligence, Internet of Things, 5G, and other emerging technologies play an increasingly important role in the world. ASML should also benefit from the US and Europe building more chip manufacturing facilities within their borders, reducing the industry’s concentration on Taiwan.
Additionally, the semiconductor industry hit a wall in 2022, which is poorly reflected in the ASML numbers. In 2022, he expects sales to grow 13% to €21.1 billion ($22.5 billion). The company also believes it can generate revenues of €44 billion ($47 billion) a year to €60 billion ($64 billion) by 2030, so investors can expect rapid growth at all levels. You should prepare for growth.
Red Lights: Assessing Under Difficult Circumstances
Still, investors should ask if ASML can be profitable as an investment and if now is the right time to buy.
That’s a difficult question to answer. The stock is currently trading at a price/earnings ratio of approximately 37x. That’s nowhere near ASML’s peak valuation ratio, but it’s definitely not a cheap stock, especially considering he bought TSMC and he can buy TSMC. intel The returns are about 13x and 8x respectively.
And like TSMC, ASML is immune to geopolitical challenges. Because it dominates the market, it faces enormous pressure not to sell equipment to China. In addition, it relies heavily on neon gas in the manufacturing process. Unfortunately for the company, at least 50% of the world’s neon gas comes from war-torn Ukraine, according to the US International Trade Commission.
Additionally, ASML may not be as discounted as it is from a price point of view. As of this writing, it’s selling at just over $550 a share, down nearly 40% from his August 2021 high of just under $900 a share.
But it’s nowhere near the intraday 52-week low of just over $363 a share hit in mid-October. From that point on, in less than three months, he’s increased by over 50%. In the meantime, ASML stocks may struggle to rise in the short term, as other chip stocks have not matched that rate of rise.
Should ASML be considered?
The recent stock price surge should not deter investors from buying ASML. The stock remains attractive even after the price hike. In fact, its recent rally makes a fall more likely, especially in the current market.
Still, the chip industry has recovered from every recession in the past, and the current recession is unlikely to be an exception. cannot, ASML could be the top semiconductor stock to buy in 2023.
Will Healy has held positions at Advanced Micro Devices, Intel, and Qualcomm. The Motley Fool US headquarters are located in and recommend ASML, Advanced Micro Devices, Intel, Nvidia, Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool’s recommended options are Intel’s Jan 2023 long call at $57.50, Intel’s Jan 2025 long call at $45, and Intel’s Jan 2025 short put at $45. The Motley Fool’s U.S. headquarters has a disclosure policy.