In the equities sector, few no-brainers exist because all publicly-traded securities inherently carry market risk. That said, if there was such a thing as a can’t-miss enterprise, the designation may go to ASML (NASDAQ:ASML). Specializing in extreme ultraviolet (EUV) lithography, the company represents an indispensable component of the global semiconductor value chain. As a result, I am bullish on ASML stock as a reliable anchor against an uncertain future.
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ASML Stock Sells Itself Due to Its Monopoly
One of the main reasons to consider a long-term buy and hold in ASML stock is – to use TipRanks contributor Nikolaos Sismanis’ words – the underlying company’s unmatched moat. That’s not some cute literary device. Rather, as my colleague pointed out, ASML enjoys a patent-protected EUV faculty, enabling ASML to “effectively form a legal monopoly in the space.”
Further, Sismanis explains that “the long-term development of the semiconductor industry is based on the concept that the energy, cost, and time required for electronic calculations can be reduced by condensing transistors on microchips.” And that’s where ASML’s lithography systems come in, which print incredibly small and intricate circuits on chips.
Here’s why ASML stock sells itself. The underlying company is the only one offering such lithography services. Therefore, practically every semiconductor manufacturer requires ASML’s solutions if they want to remain competitive. So, while the security’s 8.2% return in the past 52 weeks isn’t impressive, this isn’t about winning the game on a single swing.
Instead, with ASML stock, you’re putting runners on first base. Sometimes, you’ll accomplish that task through a slow chopper to the shortstop, or you might get there by drawing a walk from the opposing pitcher. Neither action is particularly exciting. However, you can’t touch home plate without going through all the bases.
Even better, there’s a possible argument to be made that ASML stock represents a future-proof investment. It comes down to Moore’s law, which, per Sismanis, states that “the number of transistors in a dense integrated circuit doubles roughly every two years.”
However, if it wasn’t for ASML’s ability to print increasingly smaller circuits on chips, Moore’s law may have gotten stuck at a dead end.
ASML Enjoys a Massive Total Addressable Market
Another element that should draw investors in regarding the long-term opportunity for ASML stock is the total addressable market. Simply put, it’s massive, and there’s no indication that this ecosystem will fade anytime soon.
Just look at the EUV lithography market itself. According to MarketsandMarkets, the sector reached a valuation of $9.4 billion in 2023. By 2028, the segment could hit a value of $25.3 billion. If so, that would represent a compound annual growth rate (CAGR) of 21.8%.
However, the business undergirding ASML stock covers not only the EUV lithography process but also a large chunk of the chip manufacturing space. Per Precedence Research, the global semiconductor market size reached a valuation of $591.8 billion in 2022. By 2032, the segment could hit more than $1.88 trillion. That would translate to a CAGR of 12.28%.
With stalwarts like Intel (NASDAQ:INTC) making up ASML’s vast client base, the investment makes sense on multiple levels. Essentially, no matter what happens this year – whether interest rates go down or if employment continues to rise higher – the narrative backing ASML stock is practically untouchable.
That’s not to say that shares are immune from volatility – that’s clearly not the case. However, because of the arguably future-proof business, investors can take great confidence in ASML stock.
It’s important to note that these aren’t just sugary talking points. From the second quarter of 2022 to Q3 2023, hedge funds, for the most part, increased their exposure to ASML stock. When the alpha dogs of Wall Street are willing to put their money where their mouth is, that’s a very positive sign.
Not Undervalued, but Very Predictable
No investment is perfect in every regard, and for ASML stock, one drawback centers on its valuation. Priced at 33.6x trailing-year earnings, it’s not nearly as high as some overcooked semiconductor-related enterprises. However, with the main semiconductor segments running earnings multiples of less than 30x, ASML is not discounted.
That said, the main focus of the investment narrative is predictability. As stated earlier, companies require lithography services – there’s no way around it. Therefore, it’s not surprising that ASML’s return on invested capital – essentially how efficiently the company leverages its capital for profitable investments – has been rising steadily since Fiscal Year 2019 (currently sitting at 54.3% on a TTM basis).
Is ASML Stock a Buy, According to Analysts?
Turning to Wall Street, ASML stock has a Strong Buy consensus rating based on four Buys, one Hold, and zero Sell ratings. The average ASML stock price target is $811.75, implying 14.9% upside potential.
The Takeaway: ASML Stock is Almost a Sure Thing
Nothing in the market offers a literal no-brainer investment. Everything offered on Wall Street carries risk. That said, if you’re looking for a rock-solid idea that you can rationally trust, it would be ASML. Thanks to the importance of its EUV lithography business, it’s practically future-proof. As such, ASML stock is worth consideration, especially if you’re concerned about the future.
