$ASML (-0.65%) has a lot of potential for investors especially after the stock plunged over the past months. ASML's core business is the development and manufacturing of lithography systems. These incredibly complex machines are essential for the production of computer chips, the brains of modern electronics. It has almost a full monopoly globally.
ASML's Strengths:
- Dominates a Critical Market: ASML is the leading provider of lithography systems used to manufacture the most advanced computer chips. They hold a virtual monopoly in the extreme ultraviolet (EUV) lithography market, essential for producing the smallest and most powerful chips.
- High Barriers to Entry: The technology ASML develops is incredibly complex and expensive to replicate. The HUEV Lithography technology was developed over many years and, as of now, ASML has almost the monopoly over it. This creates a significant moat around their business, protecting them from competition.
- Growth Driven by Megatrends: The demand for advanced chips is exploding, fueled by trends like artificial intelligence (AI), 5G, high-performance computing, and the Internet of Things (IoT). ASML is at the heart of this growth. ASML customers includes $NVDA (-0.03%) , $TSM (-0.36%) , $INTC (+0.06%) , $AAPL (+0.31%) .
- Strong Financials: ASML has a history of solid financial performance, with increasing revenue and profitability. Their forward-looking guidance suggests continued growth in the coming years.
- Exclusive partnerships: one amongst all the one with $AFX (-1.46%) . The latter developed the thinnest mirror on the market and competitors are still far away from this technology.
Reasons to Invest Now:
- Recent Price Dip: ASML's stock price has experienced some volatility in 2024. This could present a buying opportunity for long-term investors.
- AI Revolution: The rapid advancement and adoption of AI technologies will further drive demand for the high-end chips ASML's machines produce.
- Long-Term Growth Potential: ASML's management has outlined ambitious growth targets for the next decade, with a significant increase in revenue and profitability.
- Limited Downside: Given ASML's dominant market position and the strong industry tailwinds, the downside risk for the stock seems relatively limited at its current price point.
Important Considerations:
- The semiconductor industry is known for its cyclical nature. While the long-term outlook is positive, investors should be prepared for potential short-term fluctuations.
- Even though it is still a bit overpriced and we decide to invest we would pay a small premium the potential for this stock to grow in 2025 is definitely there.
- Concerns over Chinese technology. There is only one company in China which is actively working on similar technology. This is Shanghai Micro Electronics EquipmentI. According to ASML CEO their technology is 10 years behind hence not a thread for ASML itself.
- The Netherlands government has banned ASML from selling some of its lithography systems to Chinese customers..
