Dutch semiconductor equipment maker ASML (ASML) is pinning its hopes on an imminent boost from artificial intelligence investments by major tech companies after customers were cautious last year. In its annual report released on Wednesday, the chip company said that macroeconomic uncertainty had “led certain customers to remain cautious and control capital expenditure and cash flow more carefully in 2024.”
It also said it had faced disruptions to its supply chain because of reduced material availability and higher prices, while persistent inflationary pressures had affected suppliers.
ASML Is Bullish on AI
But ASML sounded bullish on AI, saying it will be a “key driver for growth in the semiconductor industry.”
“AI has come to life and proved itself to be a major force. It is going to drive new applications and growth in the next five to ten years – there’s no doubt about this, and a lot of our peers in the industry have also expressed similarly bullish views about the opportunity ahead,” ASML said in its report.
Today, the impact is mainly evident in the sales of very advanced servers and high-power computing, but ASML says it expects a lot more to come, though it is uncertain exactly the direction the technology will take.
It also warned that the future geopolitical outlook and regulatory changes could affect it. ASML noted for instance that export control restrictions and customer capital expenditure cuts created volatility in the investment community last year. Looking ahead, ASML said export control policies and regulations will impact on plans to increase capacity.
ASML Faces Twin Challenges
ASML faces twin challenges of tighter restrictions on exports and the risk of tariffs.
On tariffs, the risk of 25% or higher levies on chip exports to the U.S. could force up prices for ASML’s end customers. ASML supplies the necessary tools and materials used for the manufacturing of semiconductors and designs the machines that build microchips. ASML’s three largest customers are thought to be TSMC (TSM), Intel (INTC) and Samsung Electronics.
On export controls, Bloomberg reported recently that the White House is looking to further tighten Biden-era restrictions on China. Dutch and Japanese officials met U.S. counterparts to discuss ASML’s and Tokyo Electron’s (TOELY) respective chipmaking operations, with the goal in the administration being to restrict their engineers from maintaining semiconductor equipment in China. The White House would like these companies to face the same restrictions on dealing with China as the U.S. has already placed on American chip equipment companies Lam Research (LRCX), KLA (KLAC), and Applied Materials (AMAT).
Is ASML a Good Stock to Buy?
Overall, Wall Street has a Moderate Buy consensus rating on ASML stock, based on four Buys and two Holds. The average ASML price target of $927.38 implies over 30% upside.
