AI And Next Generation Nodes Will Expand Deposition Markets

Key Takeaways

• Rapid adoption of advanced semiconductor nodes and growing complexity in memory architectures are significantly expanding ASM's revenue and margin opportunities beyond market expectations.
  
• Continued innovation and diversification across customers and technology platforms are driving recurring, high-margin revenues, supporting long-term growth and resilience amid industry cycles.
  
• Geopolitical tensions, declining demand, rising local competition, currency risks, and customer concentration threaten ASM International's revenue growth, market share, and earnings stability.

Catalysts

Engages in the research, development, manufacture, marketing, and servicing of equipment and materials used to produce semiconductor devices in Europe, the United States, and Asia.

• Analyst consensus expects strong growth from advanced logic/foundry and adoption of gate-all-around (GAA) at 2nm, but customer commentary already suggests 2nm demand is outstripping previous nodes and early customer activity around 1.4nm nodes indicates that the pace and magnitude of node transitions – and hence, ASM's revenue opportunity – could exceed current market estimates over the next several years.
  
• Analyst consensus sees opportunity in HBM-driven DRAM and ALD, but ongoing customer R&D engagement and increasing ALD layer complexity in both logic and next-gen memory nodes mean ASM is poised for a larger-than-expected share-of-wallet increase as AI, vertical DRAM (4F2), and logic-like memory architectures drive up tool intensity, likely supporting higher revenue and margin upside beyond baseline forecasts.
  
• The rapidly expanding global buildout of AI datacenters, high-performance computing infrastructure, and edge devices is massively accelerating wafer starts and adoption of advanced nodes, putting ASM's ALD and epitaxy tool platforms at the center of a multi-year equipment cycle with recurring revenue and margin expansion well ahead of previous semiconductor cycles.
  
• ASM's sustained high R&D spending and continued product innovation in moly ALD, selective ALD, and advanced epitaxy are enabling early wins in newly emerging architectures such as backside power delivery and chiplet-based 3D integration, opening up entirely incremental revenue streams and improving long-term gross margin profiles as their process steps become more critical.
  
• The ongoing diversification and expansion of the installed base – including strong penetration gains with leading foundries, IDMs, and new customers in China across both advanced and mature nodes – is driving a sharp, sustained rise in spares and outcome-based services revenue, which are recurring and higher-margin, supporting visible growth in earnings and cash flow even through periods of cyclical volatility.

ASM International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on ASM International compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming ASM International's revenue will grow by 19.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 15.4% today to 26.1% in 3 years time.
• The bullish analysts expect earnings to reach €1.4 billion (and earnings per share of €28.34) by about July 2028, up from €483.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 33.4x on those 2028 earnings, down from 45.6x today. This future PE is lower than the current PE for the GB Semiconductor industry at 51.0x.
• Analysts expect the number of shares outstanding to decline by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.01%, as per the Simply Wall St company report.

ASM International Future Earnings Per Share Growth

Risks

• Ongoing geopolitical tensions, export controls, and rising protectionism, especially with respect to China, are resulting in unpredictable order flows, declining bookings, and potential market access restrictions, which could significantly reduce ASM International's revenue in key regions going forward.
  
• Diminishing equipment demand from mature logic/foundry and especially in the memory and power/analog/wafer segments, which have already seen multi-quarter downturns and low visibility on recovery, could negatively impact the company's future revenue growth and earnings stability.
  
• Increasing competition from local Chinese equipment suppliers, who are accelerating in both ALD and epi for commodity layers when export controls bar ASM International from serving certain fab applications, threatens long-term market share and pressure on gross margins.
  
• Elevated currency risk resulting from a weakening US dollar-given that over 80 percent of the company's sales and significant material costs are dollar-denominated-has already contributed to translation losses and negative margin impacts, which could further compress net margin and reported earnings in periods of unfavorable FX trends.
  
• Heavy reliance on large Asian foundry customers exposes ASM International to customer concentration risk, and any reduction, delay, or cancellation of investments in advanced nodes or the shift of capacity expansion plans, especially in gate-all-around technology, could lead to significant revenue volatility and earnings unpredictability.

Valuation

• The assumed bullish price target for ASM International is €760.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of ASM International's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €760.0, and the most bearish reporting a price target of just €445.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €5.3 billion, earnings will come to €1.4 billion, and it would be trading on a PE ratio of 33.4x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of €450.9, the bullish analyst price target of €760.0 is 40.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.