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ASML (ASML) Stock Before Q2 Earnings: To Buy or Not to Buy?
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ASML Holding N.V. (ASML - Free Report) is slated to report second-quarter 2024 results on Jul 17. The upcoming results are expected to reflect ASML’s portfolio strength, growing investments, expanding position in the memory market and increasing design wins.
However, market uncertainties, inflationary pressure, geo-political tensions and the rising cost of technological innovations are likely to have dampened the company’s prospects in the second quarter.
For the second quarter, ASML expects revenues between €5.7 billion and €6.2 billion. The Zacks Consensus Estimate for the same is pegged at $6.35 billion, indicating a fall of 15.6% from the year-ago quarter’s actual.
The Zacks Consensus Estimate for second-quarter earnings is pegged at $3.87 per share, which implies a decline of 27.9% from the year-ago quarter’s reported number. The estimate has been unchanged over the past 30 days.
Image Source: Zacks Investment Research
ASML Holding has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in the trailing four quarters, the average beat being 10.21%.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for ASML Holding this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
The semiconductor industry has been staging a solid rebound on growing demand and the optimism surrounding artificial intelligence (AI). This has been a positive for wafer fab equipment, which, in turn, bodes well for ASML.
Increasing adoption of advanced nodes for supporting the build-up of the digital infrastructure, including growth drivers such as 5G, AI and high-performance computing solutions, is expected to have continued bolstering the demand for ASML Holding’s products. As the technology nodes continue to shrink, the demand for the company’s products continues to increase.
Improvements in lithography tool utilization levels at both logic and memory customers are expected to have been major positives. Growing memory demand, thanks to DRAM technology node transitions in support of advanced memories such as DDR5 and HBM, is likely to have benefited the quarterly performance.
The company’s increasing investments in Extreme Ultraviolet (EUV) infrastructure are likely to have benefited its performance in the quarter under review. The service business of ASML is expected to have performed well, fueled by the increasing contribution of EUV services.
Strength in low numerical aperture (NA) and high NA machines is likely to have benefited the company’s Installed Base business. The growing uptake of NXE:3800 low NA machine, which has the capability to deliver a robust performance with a productivity of 220 wafers per hour, is likely to have driven EUV sales.
In regard to high NA, the rising shipment of 0.55 NA EUV is noteworthy.
However, the impacts of market uncertainties related to the challenging macroeconomic environment are expected to get reflected in the to-be-reported quarterly results. Rising tensions between the United States and China, due to which there are constraints on selling leading-edge semiconductors and equipment to China, are likely to have been major headwinds.
Although ASML has started witnessing inventory moving toward healthy levels in recent times, high inventory is still likely to have been concerning.
Weak momentum among logic customers, as they continue to digest the significant capacity additions made over the past year, is anticipated to have been a negative.
Price Performance & Valuation
ASML Holding’s shares have appreciated 43.3% on a year-to-date basis, slightly below the industry’s 44% growth. Meanwhile, the company’s shares have outperformed the S&P 500 index’s rise of 18.2% and Zacks Computer and Technology sector’s rally of 28.7%.
ASML has outperformed its peer Lam Research’s (LRCX - Free Report) 36.5% return but underperformed Applied Materials’ (AMAT - Free Report) 50.1% gain year to date.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Now, let us look at the value ASML Holding offers investors at current levels.
Currently, ASML is trading at a premium, with a forward 12-month P/E of 41.64X compared with the industry’s 34.14X and higher than the median of 36.95X, reflecting a stretched valuation.
ASML's P/E F12M Graph
Image Source: Zacks Investment Research
Investment Thesis
ASML’s comprehensive product portfolio is aligned with customers’ roadmaps, which makes it capable of delivering cost-effective solutions to support all kinds of applications. Hence, ASML is well-positioned to ride on the growing proliferation of AI, energy transition and global megatrends in the electronics industry, which, in turn, are expected to fuel growth across the semiconductor market.
The company has orders from a number of new fabs being constructed across the world. Management expects a better second half of 2024 and a cyclical upturn for 2025. ASML’s growing efforts to add and improve capacity to meet current and future customer demand with the support of its supply-chain partners are other positives.
However, end-market volatility, U.S.-China tensions, mounting expenses and weakening momentum in logic make near-term prospects of ASML foggy. The company expects lower logic revenues this year than last year.
Final Thoughts
For those wondering how to play ASML stock ahead of the second-quarter 2024 earnings report, a nuanced approach may be warranted. While the company’s long-term prospects are promising as the semiconductor industry continues to regain momentum, investors should not rush in to buy the stock. Instead, they should monitor the stock’s developments closely for a more appropriate entry point, as an erroneous and hasty decision could affect portfolio gains.
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ASML (ASML) Stock Before Q2 Earnings: To Buy or Not to Buy?
ASML Holding N.V. (ASML - Free Report) is slated to report second-quarter 2024 results on Jul 17. The upcoming results are expected to reflect ASML’s portfolio strength, growing investments, expanding position in the memory market and increasing design wins.
However, market uncertainties, inflationary pressure, geo-political tensions and the rising cost of technological innovations are likely to have dampened the company’s prospects in the second quarter.
For the second quarter, ASML expects revenues between €5.7 billion and €6.2 billion. The Zacks Consensus Estimate for the same is pegged at $6.35 billion, indicating a fall of 15.6% from the year-ago quarter’s actual.
The Zacks Consensus Estimate for second-quarter earnings is pegged at $3.87 per share, which implies a decline of 27.9% from the year-ago quarter’s reported number. The estimate has been unchanged over the past 30 days.
Image Source: Zacks Investment Research
ASML Holding has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in the trailing four quarters, the average beat being 10.21%.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for ASML Holding this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
ASML has an Earnings ESP of 0.00% and sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors to Focus on Ahead of Q2 Earnings
The semiconductor industry has been staging a solid rebound on growing demand and the optimism surrounding artificial intelligence (AI). This has been a positive for wafer fab equipment, which, in turn, bodes well for ASML.
Increasing adoption of advanced nodes for supporting the build-up of the digital infrastructure, including growth drivers such as 5G, AI and high-performance computing solutions, is expected to have continued bolstering the demand for ASML Holding’s products. As the technology nodes continue to shrink, the demand for the company’s products continues to increase.
Improvements in lithography tool utilization levels at both logic and memory customers are expected to have been major positives. Growing memory demand, thanks to DRAM technology node transitions in support of advanced memories such as DDR5 and HBM, is likely to have benefited the quarterly performance.
The company’s increasing investments in Extreme Ultraviolet (EUV) infrastructure are likely to have benefited its performance in the quarter under review. The service business of ASML is expected to have performed well, fueled by the increasing contribution of EUV services.
Strength in low numerical aperture (NA) and high NA machines is likely to have benefited the company’s Installed Base business. The growing uptake of NXE:3800 low NA machine, which has the capability to deliver a robust performance with a productivity of 220 wafers per hour, is likely to have driven EUV sales.
In regard to high NA, the rising shipment of 0.55 NA EUV is noteworthy.
However, the impacts of market uncertainties related to the challenging macroeconomic environment are expected to get reflected in the to-be-reported quarterly results. Rising tensions between the United States and China, due to which there are constraints on selling leading-edge semiconductors and equipment to China, are likely to have been major headwinds.
Although ASML has started witnessing inventory moving toward healthy levels in recent times, high inventory is still likely to have been concerning.
Weak momentum among logic customers, as they continue to digest the significant capacity additions made over the past year, is anticipated to have been a negative.
Price Performance & Valuation
ASML Holding’s shares have appreciated 43.3% on a year-to-date basis, slightly below the industry’s 44% growth. Meanwhile, the company’s shares have outperformed the S&P 500 index’s rise of 18.2% and Zacks Computer and Technology sector’s rally of 28.7%.
ASML has outperformed its peer Lam Research’s (LRCX - Free Report) 36.5% return but underperformed Applied Materials’ (AMAT - Free Report) 50.1% gain year to date.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Now, let us look at the value ASML Holding offers investors at current levels.
Currently, ASML is trading at a premium, with a forward 12-month P/E of 41.64X compared with the industry’s 34.14X and higher than the median of 36.95X, reflecting a stretched valuation.
ASML's P/E F12M Graph
Image Source: Zacks Investment Research
Investment Thesis
ASML’s comprehensive product portfolio is aligned with customers’ roadmaps, which makes it capable of delivering cost-effective solutions to support all kinds of applications. Hence, ASML is well-positioned to ride on the growing proliferation of AI, energy transition and global megatrends in the electronics industry, which, in turn, are expected to fuel growth across the semiconductor market.
The company has orders from a number of new fabs being constructed across the world. Management expects a better second half of 2024 and a cyclical upturn for 2025. ASML’s growing efforts to add and improve capacity to meet current and future customer demand with the support of its supply-chain partners are other positives.
However, end-market volatility, U.S.-China tensions, mounting expenses and weakening momentum in logic make near-term prospects of ASML foggy. The company expects lower logic revenues this year than last year.
Final Thoughts
For those wondering how to play ASML stock ahead of the second-quarter 2024 earnings report, a nuanced approach may be warranted. While the company’s long-term prospects are promising as the semiconductor industry continues to regain momentum, investors should not rush in to buy the stock. Instead, they should monitor the stock’s developments closely for a more appropriate entry point, as an erroneous and hasty decision could affect portfolio gains.