ASML : The Backbone of the Semiconductor Industry - Is It Still a Buy in 2024?

Introduction

ASML is widely regarded as the backbone of the semiconductor industry, supplying the world's leading chipmakers with cutting-edge lithography machines. These machines are essential for the production of the most advanced chips, making ASML an indispensable player in the tech supply chain.

 

But with a stock price that has seen explosive growth over the years, the question remains: Is ASML still an attractive investment opportunity in 2024? In this article, we’ll dive deep into ASML’s business model, revenue streams, stock performance, and future outlook to help you make an informed investment decision.

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1. What is ASML and How Does It Make Money?

ASML is a Dutch multinational company that provides the lithography machines used in semiconductor manufacturing. These machines are critical in the production of chips that power everything from smartphones to data centers.

 

The company’s flagship product, the EUV (Extreme Ultraviolet) lithography system, is particularly essential for manufacturing cutting-edge chips for leading companies like TSMC, Samsung, and Intel.

 

Revenue Streams:
ASML’s business model revolves around a few core revenue streams:

• Equipment Sales: The primary source of revenue comes from selling lithography machines, particularly the highly advanced EUV machines, which can cost over $100 million each.
• Service Contracts: ASML also generates a substantial amount of income from maintaining and servicing the machines it sells, providing long-term revenue from its existing customer base.
• Upgrades and Software: ASML continuously upgrades its machines to improve performance, adding additional revenue through software and hardware enhancements.

In 2024, ASML’s total revenue is projected to reach €27 billion, driven by ongoing demand for its EUV systems and the increasing complexity of chip manufacturing.

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2. Stock Price: Past vs. Present

ASML’s stock has seen extraordinary growth over the past five years. From a low of around $150 in 2019, the stock soared to over $750 by late 2023. This meteoric rise was fueled by a surge in demand for semiconductors, particularly during the global chip shortage and the ongoing digital transformation.

 

As of October 2024, ASML’s stock is trading at approximately $650. While this represents a slight pullback from its peak, it is still significantly higher than its pre-pandemic levels. Long-term investors who got in early have seen incredible gains, but is the current price still attractive for new investors?

 

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3. Is ASML’s Current Price Attractive?

At $650, ASML trades at a price-to-earnings (P/E) ratio of around 30, which is higher than the average for the semiconductor industry. This suggests that investors are willing to pay a premium for ASML due to its dominant position in the market and its near-monopoly in EUV technology.

 

However, the high valuation also raises concerns about whether the stock still has room to grow.

Key considerations :

 

• Demand for Chips : The demand for advanced chips, particularly in sectors like AI, 5G, and automotive, remains strong, which should continue to drive demand for ASML’s machines.
• Supply Chain Risk : On the downside, any disruption in ASML’s supply chain, particularly in sourcing key materials, could negatively impact its ability to meet demand and hurt its stock price.

Overall, while the stock may be expensive, its monopoly on EUV machines and continued growth in the semiconductor sector make it an attractive long-term investment for those willing to weather short-term volatility.

https://www.investing.com/news/company-news/jpmorgan-cuts-asml-price-target-to-1148-keeps-overweight-93CH-3667258

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4. Future Outlook: What’s Next for ASML?

ASML’s future remains bright, particularly as the company continues to innovate and expand its product offerings. The next generation of lithography machines, known as High-NA EUV, is expected to launch in the coming years, which could extend ASML’s technological lead over competitors.

 

These machines will be critical for producing even smaller and more powerful chips, a key trend as Moore’s Law continues to evolve.

 

Growth Catalysts:

• Expansion into New Markets : ASML is poised to benefit from growth in new sectors like automotive chips, AI chips, and 5G infrastructure, all of which require advanced semiconductors.
• Geopolitical Tensions : The increasing push for technological independence in regions like China and the U.S. could lead to increased investment in local semiconductor manufacturing, further boosting ASML’s sales.

In short, ASML is not just a tech company—it’s a cornerstone of the global tech infrastructure. Its future growth prospects remain strong, making it a compelling investment even at a premium valuation.

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Conclusion: Is ASML Still a Buy in 2024?

ASML’s stock may not be cheap, but its dominant market position and long-term growth potential make it a solid choice for investors looking for exposure to the semiconductor industry. The company’s near-monopoly on EUV technology ensures that it will continue to be a key player in the chip supply chain, and its upcoming innovations could drive further growth.

 

For long-term investors, ASML remains a buy—especially if you're looking to invest in a company that’s literally building the future of technology.

 

Wishing you all success and good health!