ASML Holding (ASML) develops, produces, and services advanced lithography equipment used in chip manufacturing. It specializes in lithography systems, metrology, inspection systems, and lithography solutions. The company’s Extreme Ultraviolet (EUV) lithography technology, which enables it to produce smaller and more efficient semiconductor chips, is what gives it an edge over its competitors.
ASML’s main products include EUV lithography machines, deep ultraviolet (DUV) lithography systems, and various metrology and inspection systems. The company’s technology and the resulting semiconductor chips are used in various applications ranging from consumer electronics to automotive and artificial intelligence.
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Its end markets include automotive, smart technology industries, healthcare, and consumer electronics. In short, the company is an integral part of the global supply chain, helping many industries run efficiently.
The threat of US sanctions on China
Many of the major semiconductor manufacturers like Intel, TSMC, and Samsung are a part of the company’s client list. These partnerships help the company generate stable and reliable revenue. However, a different type of threat has started to emerge recently for the company. China’s resurgence as a potential technology leader of the world is a threat to both the US and Europe. As a result, the United States has been placing restrictions on the export of US and European technology to China.
Unfortunately for ASML, this dents its profits. In the second quarter, 49% of the company’s revenue came from China. This might look like a big deal at first, but a lot of it is due to forward sales as the Chinese expect things to get tougher from here on.
A technician in a clean room working on a semiconductor device, illuminated by the machines.
The US and Dutch governments have already asked ASML to obtain licensing before it exports further updates to equipment it has already sold to China. Sanctions like these will continue to hurt the company’s top line, but the blow is manageable. As long as it continues its pace of innovation, its dominance in advanced packaging and its in-demand lithography equipment will help the company offset the loss in sales due to China restrictions.
As the AI driven demand for ASML’s chips and technology continues to surge, the company remains a good investment. The global digital transformation and the increasing spending on AI infrastructure and IoT technologies continue to drive the company’s growth. On top of that, the company’s focus on R&D ensures it doesn’t fall behind the competition. With all these positives contributing positively toward the company’s stock, it continues to be an attractive investment.
ASML Holdings isn’t on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 81 hedge fund portfolios held AMZN at the end of the second quarter which was 75 in the previous quarter. While we acknowledge the potential of ASML as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as ASML but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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