The semiconductor industry began 2024 with renewed optimism after leaving behind a cyclic downturn in 2023. The industry has been the standard-bearer for the global technology sector and a “turning point” declaration is resonating across its $600 billion market.
A Glimpse of the Semiconductor Industry
According to the latest data from the Semiconductor Industry Association (SIA), global sales soared to $48 billion in November, marking the first yearly and quarterly rise in over a year. The first half of 2022 witnessed monthly sales peak above $50 billion. The future looks brighter with the SIA’s World Semiconductor Trade Statistics unit projecting a robust 13% upswing in 2024, propelling global revenues to $588 billion.
ASML Emerges as a Powerhouse
While a select few chip companies have thrived amidst the AI chip demand surge, ASML Holdings stands as a monumental beneficiary. ASML, Europe’s most valuable technology firm, enjoys an enviable near-monopoly as the sole producer of equipment essential for crafting sophisticated semiconductors. The company recently reached a record high in stock value after witnessing a significant threefold increase in orders the past quarter. In a year marked by subdued semiconductor manufacturing capacity, ASML remarkably grew its sales by 30% to reach nearly $30 billion. ASML’s long lead time on orders for its high-end machines, surpassing its manufacturing capacity, allowed the company to boost shipments even during a tepid year for the chip industry.
The ASML Advantage
ASML received a record $9.98 billion in orders in the fourth quarter, driven by demand for its most advanced machines. The surge in orders, led by big players such as Intel, Samsung Electronics, and Taiwan Semiconductor, positions ASML as a pivotal driver of the industry’s health. ASML’s CEO, Peter Wennick, emphasized the transformative impact of artificial intelligence on their business, noting that high-performance memory chips are crucial in unleashing AI’s full potential. This urgency is compelling chipmakers to secure ASML’s cutting-edge extreme ultraviolet (EUV) lithography systems, a process that takes 12 to 18 months to deliver.
The Future Outlook for ASML
ASML’s rally to a record high not only outlines its central role in the AI boom but also underscores the unexpected speed of its order resurgence, driven by the high bandwidth memory business and fueled by the soaring demand for AI infrastructure. While ASML’s stock may seem pricey based on one-year metrics, its forward-looking view paints a different picture, positioning the company for a promising 2025 with very substantial growth. ASML’s bets and investments in a reinvigorated chip boom signal robust earnings potential. Moreover, its monopolistic position in advanced lithography and its technology’s pivotal role in AI chip manufacturing make it an attractive long-term growth prospect.
Investment in ASML
ASML, anticipated to outpace the semiconductor market’s growth, is a compelling investment opportunity, especially considering its unique position in the lithography landscape. The company’s unchallenged dominance in EUV lithography, coupled with forthcoming advancements like the EUV High-NA, solidify its market lead. Furthermore, ASML’s significant market share in less advanced DUV lithography systems and the longevity of its machines contribute to recurring service revenue. As megatrends like AI and electrification drive the chip industry’s growth, ASML emerges as a prime beneficiary and a strategic investment choice, presenting a robust case for purchase up to $887 a share.
