Everyone loves to buy cheap stocks – but when stocks are cheap, no one buys them!
The most valued companies in Europe are experiencing their worst month of the entire year, trading near 2023 prices.
After we discussed Europe's #2 largest company yesterday,
Today we will discuss one of the most important technology companies on Earth ever and the #3 largest company in Europe.
Which is – $ASML – the lithography machine monopoly!
The company essentially provides critical systems for advanced chip manufacturing, it holds a monopoly in the field of lithography machines and enables mass production of extremely small and efficient chips essential for AI applications; its technology is fundamental and critical in the semiconductor world.
How much of a monopoly is ASML in its field?
In fact, ASML controls the lithography machine sector with a 90% market share! Lithography machines are used by large manufacturers, for example $TSM, for Nvidia's Blackwell chips!
The shares of the monopolistic semiconductor equipment powerhouse have retreated by over 40% (!) from all-time highs reached only a few months ago.
So why did it crash?
The company's Q3 earnings, published about a month ago, were mistakenly released a day before the scheduled date and led to the sharpest stock decline in the last 25 years; the reports revealed that the company sharply cut its full-year guidance!
In the reports, the company stated it expects revenue of between $33.1-38.6 billion compared to previous guidance of $38.6-44.3 billion. This is a significant reduction that also places the midpoint lower than analysts' forecast of $39.2 billion.
Ostensibly, the guidance cut means a decrease in demand from the company's customers, which are essentially the world's largest chip companies, and if they buy fewer machines, it indicates they are also experiencing a decline in chip demand.
But that's not the end of the story...
A few days ago, the company retracted!
The company published its 2030 target, which is expected to be annual revenue of between 44 billion and 60 billion euros with gross margins between 56% and 60%.
For comparison, it expects 2025 revenue of 30 to 35 billion euros with gross profitability of 51% to 53%.
We need significant innovation for artificial intelligence to fulfill its promises
A few weeks ago, we had a conservative outlook for fiscal year 2025, but regarding fiscal year 2030, we are still very bullish," says the company's CEO.
The company actually expects average annual growth of 8% to 14% over the next five years.
Management expects global spending on advanced lithography to grow at a CAGR of 10-20% between 2025 and 2030, with an even stronger CAGR of 15-25%, which will increase demand for the lithography machines it produces (as a reminder, it is a monopoly and controls 90% of the field).
A boost?
Prominent investors are taking advantage of the stock's declines to increase their holdings, for example, Valley Forge Capital Management, which doubled its stake in the company's shares by 100%, while Polen Capital Management increased its stake by 31.75% – in the last quarter alone.
The expected impact of US trade policy towards China must also be considered, especially now that Trump has been elected US president.
Interesting fact: China accounts for 50% of $ASML's revenue.
The prevailing assumption is that Trump's team will make it very difficult to export high-tech to China in the coming years...
In fact, this is one of ASML's biggest disadvantages at the current time – its exposure to China.
However, if you believe in AI, here's a fact to consider:
In fact, ASML is the only company capable of developing lithography machines for the semiconductor industry.
In the next post about ASML, we will dive in and examine how large and deep $ASML's moat is in the chip industry.