We came across a bullish thesis on ASML Holding N.V. (ASML) on Etcaetera’s Substack by Etcaetera (Akim’s Newsletter) and Panic Drop. In this article we will summarize the bulls’ thesis on ASML. ASML Holding N.V. (ASML) share was trading at $787.84 as of Sept 18th.
A worker operating a robotic arm in a semiconductor manufacturing facility.
ASML Holdings (ASML) is distinguished by its dominant position in EUV lithography, essential for advanced semiconductor manufacturing and AI chip production. As Timothy highlighted, “a great business can be a lousy investment if you pay too much for it,” underscoring the importance of valuation in investment decisions. Current market conditions make ASML stock an attractive entry point despite recent fluctuations.
The company has achieved impressive growth over the past decade, with an average annual revenue increase of 18.42%. It has enjoyed seven years of double-digit growth and three years of high single-digit growth. However, 2024 is expected to be a challenging year, with revenue growth projected at just 0.4% and a slight decline in net income. CFO Roger Dassen noted that customers are cautious with spending and capital expenditure due to supply chain disruptions, tight monetary policies, and inflationary pressures.
This slowdown has resulted in a notable 25% drop in ASML’s stock price in recent weeks, adjusting the stock back to its fair value. Despite this decline, the stock has surged by 190% over the past five years and 755% over the past decade. Currently, it is trading near its 50-day moving average and at a support level, indicating potential undervaluation given its strong historical performance.
Looking forward, ASML is expected to resume robust growth, with forecasts suggesting over 30% revenue increase in 2025 and continued double-digit growth for at least three years. Although the management’s outlook for 2024 is conservative, reflecting current economic uncertainties, ASML has a proven track record of surpassing expectations. Analysts predict a recovery in earnings in the latter half of 2024, with significant growth anticipated in the fourth quarter, potentially triggering a rally as global interest rates are expected to decrease.
From a valuation standpoint, the recent stock decline has aligned ASML’s price with its fair value, trading at a historical median of 30x forward earnings. Given the expected acceleration in earnings and potential multiples expansion with lower interest rates, the stock could see double-digit annual appreciation. Wall Street’s target of over $1,000 per share, representing at least a 20% upside, appears reasonable and reflects the stock’s recent performance and future growth prospects.
ASML Holding N.V. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 81 hedge fund portfolios held ASML at the end of the second quarter which was 75 in the previous quarter. While we acknowledge the risk and potential of ASML as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ASML but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.