Summary

• ASML Holding is poised for multi-year growth driven by surging demand for lithography systems essential for semiconductor production, making it a core investment.

• ASML's Q4 profits beat estimates, with €9.3 billion in sales and €4.79 billion in gross profits, reflecting strong demand and operational efficiency.

• The company anticipates sustained growth in 2025, fueled by hyperscalers and data centers needing microchips for AI workloads, projecting €30-35 billion in total sales.

• Despite a high profit multiple, ASML's critical role in the semiconductor supply chain and AI-driven demand justify an intrinsic value above $1,000.

A robotic arm installing CPU in a computer

luza studios

ASML Holding N.V. (NASDAQ:ASML) was already slated to report robust earnings for its fourth quarter after other companies in the industry gave a snapshot of strong demand for the semiconductor products earlier in January.

Among the companies that reported skyrocketing demand for microchips was Taiwan Semiconductor Manufacturing Company Limited (TSM) which essentially serves 60% of the global foundry market.

ASML Holding, which is not focused on chip-making, but rather on chip-making equipment, like lithography systems, is also profiting from the surging demand for new microchips.

Ahead of the 4Q24 earnings presentation, I recommended ASML Holding as a 'Buy' because I predicted that the semiconductor market was poised for a multi-year expansion, supported by accelerating demand for microchips and the lithography systems needed to produce them.

I think that ASML Holding has considerable long-term re-rating potential and with system sales and booking booming in the fourth quarter, the chip company is well-positioned to profit from sustained sector growth.

Gross Profits Up-Scaling Highlights Re-Rating Opportunity

ASML Holding outperformed the Street's profit estimate for the fourth quarter. The chip company's quarterly profits amounted to $7.14 per share. This profit figure beat the estimate by 10 cents. The profit trend in 2024 is highly positive for the semiconductor company as well, primarily due to growing demand for lithography systems that make up ASML Holding's main business.

Earnings And Revenues

Earnings And Revenues (Yahoo Finance)

ASML Holding's sales in the fourth quarter amounted to €9.3 billion, up 28% YoY predominantly because of a higher number of lithography systems that were sold to customers during the reporting period.

In terms of gross profits, the fourth quarter was a profitable one for the chip company once again as it added about €1.1 billion to its gross profit line in 4Q24 compared to the year ago period. In 4Q24, ASML Holding's gross profits totaled €4.79 billion, up 29% YoY, and the chip company is benefiting from an increase in operating margins also, a key lever for profit growth.

ASML Holding's operating profit margin in 4Q24 was 36.2%, 3.1 percentage points higher than in the year ago fourth quarter.

Consolidated Statements Of Operations

Consolidated Statements Of Operations (ASML Holding N.V.)

ASML Holding is selling lithography systems to chip producers that need the equipment in order to mass produce microchips. ASML Holding sold 132 lithography systems in the fourth quarter, up 14% QoQ, and system sales were mostly comprised of the popular KrF machines which offer customers cost-per-layer savings.

In addition, the chip-equipment company secured €7.1 billion in advance system sales in 4Q24 (also reported as bookings), up 169% QoQ. In 2024, we have seen a rather consistent uptrend in system sales for ASML Holding, as 4Q24 net system bookings surged 89% compared to the 1Q24 sale volume. This growth indicates strongly accelerating demand from hyperscalers, and the forecast for 2025 reflects this favorable demand situation.

Net System Bookings Activity

Net System Bookings Activity (ASML Holding N.V.)

ASML Holding Anticipates Sustained Growth In 2025

The chip-equipment maker is shooting for between €7.5 billion and €8.0 billion in sales in the first quarter and total sales of €30 billion and €35 billion, which were already expected.

ASML Holding's anticipated sales growth is driven predominantly by growth from hyperscalers and data centers, which need a boatload of microchips to power AI workloads.

Moving forward, HPC-driven semiconductor sales growth is likely to remain the single biggest catalyst for ASML Holding's profit growth as well.

Semi Sales

Semi Sales (Techinvestments.io)

High Profit Multiple, But ASML Might Be Worth Paying It

ASML Holding and Nvidia Corp. (NVDA) are two of the most expensive investments investors can make in the semiconductor industry and even Taiwan Semiconductor Manufacturing Limited, a premier chip proxy, is relatively cheap in comparison.

ASML Holding is a leading chip-equipment maker and, thus, should be able to participate in the growth of the industry and from higher demand for new, high-performance lithography machines. Together with TSMC, I view ASML Holding as a core holding for any interested investors that look for long-term capital appreciation potential.

This year and next year, ASML Holding is anticipated to clock in profit growth of at least 20% annually (24% in 2025 and 21% in 2026). With the AI boom rolling on, I think that ASML Holding will also be able to continue to grow its profits.

Earnings Estimate

Earnings Estimate (Yahoo Finance)

ASML Holding is selling for a leading profit multiple of 24.3x, whereas Nvidia, as the GPU market leader, is changing hands for 30.3x. Taiwan Semiconductor Manufacturing Limited costs investors a relatively low 19.0x leading (2026) profits and my last stock classification on TSMC was 'Buy', primarily because of the chip company's domineering position in the global foundry market.

ASML, TSMC and Nvidia are core holdings for me that I prefer to never sell. In my view, all three major chip companies could re-rate to a profit-based multiple of 35x which, in the case of ASML Holding, equates to an implied intrinsic value of $1,042.

Why The ASML Holding Investment Thesis Might Disappoint

ASML Holding is a well-run chip-making equipment company and as thus exposed to the general growth and demand trends in the semiconductor sector.

Chip-making is an extremely complex and expensive exercise, requiring a tremendous amount of capital expenditure. Export restrictions for lithography systems could be a headwind for ASML Holding's expansion strategy.

In my view, taking into account the long-term nature of the demand trends in the semiconductor industry (artificial intelligence), I think the most severe risk that investors need to contend with is possibly missing out on profiting from AI-catalyzed profit growth.

My Conclusion

In my view, ASML Holding has robust, durable business tailwinds that justify an all-in investment approach.

The stock has pulled back since October 2024 and the fourth quarter earnings presentation was not only better than investors anticipated, but the growth in lithography system sales and strong uptick in gross profits make the company quite appealing as long-term proxy on the semiconductor industry.

Since ASML is an incredibly important cog in the semiconductor supply chain and sells high-in-demand lithography systems needed for chip-production, I think that ASML Holding's stock could make up the core of a semiconductor-oriented investment portfolio.

In terms of profit multiple, I view the stock as underpriced with an intrinsic value north of $1,000. Buy.