ASML: Future Memory Spending And AI Investment Will Support Shareholder Value

Key Takeaways

• ASML's innovations in EUV and High-NA platforms enhance productivity, reduce costs, and bolster potential revenue and margin growth.
  
• AI demand and strategic global collaborations are poised to boost ASML's lithography equipment sales, stabilizing and potentially increasing future earnings.
  
• Geopolitical tensions and macroeconomic fluctuations could impact ASML's revenue growth, cost structure, and financial predictability, particularly amid challenges in High-NA technology adoption.

Catalysts

Provides lithography solutions for the development, production, marketing, sales, upgrading, and servicing of advanced semiconductor equipment systems.

• ASML's advancements in EUV technology, particularly with the Low-NA NXE:3800E and High-NA platforms, enhance productivity and support cost of technology reduction. This is expected to drive further adoption and could positively impact revenue and margins.
  
• The growth in artificial intelligence (AI) demand is expected to continue supporting semiconductor industry expansion, which should drive higher demand for ASML's lithography equipment, thereby potentially boosting revenues.
  
• The introduction and ramp-up of High-NA EUV systems, with phases leading to full-scale manufacturing by customers, provides a roadmap for increasing system sales, supporting long-term earnings growth.
  
• Installed Base Management revenues are anticipated to increase, driven by higher service levels, expansion of the installed EUV base, and a rise in their upgrade business, positively influencing revenue and net margins.
  
• ASML's efforts to handle tariff uncertainties and collaborate with global customers suggest resilient order inflows and strategic positioning, which could stabilize and improve future earnings.

ASML Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ASML Holding's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 29.3% today to 30.5% in 3 years time.
• Analysts expect earnings to reach €12.1 billion (and earnings per share of €32.65) by about September 2028, up from €9.4 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €8.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.1x on those 2028 earnings, up from 25.7x today. This future PE is lower than the current PE for the GB Semiconductor industry at 37.3x.
• Analysts expect the number of shares outstanding to decline by 1.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.03%, as per the Simply Wall St company report.

ASML Holding Future Earnings Per Share Growth

Risks

• The uncertainty surrounding increasing tariffs could directly impact ASML's cost structure and gross margins, as the company and its customers work to absorb these additional costs.
  
• Significant geopolitical risks, especially related to China and the U.S., could disrupt ASML's operations and sales, particularly impacting revenues from its largest customers.
  
• The transition from R&D to production for High-NA systems presents challenges and the timing of customer adoption due to requirements for tool maturity, potentially impacting ASML's revenue growth from this new technology.
  
• Potential changes in macroeconomic conditions could affect demand for semiconductor technology, introducing risks to ASML's revenue growth projections and booking levels.
  
• Variability in bookings and the dynamics of customer order timelines can introduce uncertainty into ASML's financial performance, impacting revenue visibility and long-term planning.

Valuation

• The analysts have a consensus price target of €754.129 for ASML Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €950.0, and the most bearish reporting a price target of just €500.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €39.6 billion, earnings will come to €12.1 billion, and it would be trading on a PE ratio of 29.1x, assuming you use a discount rate of 8.0%.
• Given the current share price of €625.3, the analyst price target of €754.13 is 17.1% 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.