ASML Counts On AI-Related Orders to Revive Stock from Summer Dip

(Bloomberg) — After a volatile summer, ASML Holding NV (ASML) investors are hoping that its earnings report will underline the chip equipment maker’s strong credentials as an artificial intelligence trade with further to run.

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Shares in Europe’s most valuable technology company have fallen about 20% since a July high, hurt by the prospect of more severe US restrictions on its business in China as well as a broader rotation out of the sector this summer. Those factors overshadowed estimate-beating orders for ASML’s machines and ended an AI-fueled rally that had seen the shares almost double in value since the start of 2023.

“We are expecting healthy orders,” Jefferies analyst Janardan Menon said. “We think TSMC orders will be higher and China will be reasonably stable.” He expects bookings to come in above the €5.57 billion ($6.1 billion) figure reported last quarter. The company is due to report third-quarter results before the European market open on Wednesday.

“If they come in with those kind of orders, I think the stock should do okay,” Menon added.

A boost would be welcome, with the shares trading at about 30 times forward earnings — lower than their five-year average and well below AI-driven stocks like Nvidia Corp. at 37 times. Still, they’re trading higher than a group of other chip equipment makers in data compiled by Bloomberg. ASML, which counts Taiwan Semiconductor Manufacturing Co. and Intel Corp. among its biggest customers, has a monopoly on making the machines that produce the most advanced chips.

Orders from China will be a particular focus. The stock slumped in July after Bloomberg reported that the US was considering using the most severe trade restrictions available if the Netherlands resisted demands to limit ASML’s ability to service restricted equipment that’s already in China. The Dutch government subsequently planned to limit ASML’s ability to repair and maintain its top-of-the-line gear in the country, Bloomberg reported.

So far, export controls have provided a boost to ASML’s orders from China, which has been buying up unrestricted older kit to make more mature types of semiconductors. The country has accounted for almost half of ASML’s revenue in recent quarters, though some analysts expect this to start to come down, pressuring the stock in the future.