This analyst isn't worried about ASML chip demand. Here's why

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Shares of ASML Holding (ASML) are under pressure on Wednesday after the company reported that its net sales fell 21.6% year-over-year. To discuss the situation, Insinger Gilissen Senior Equity Analyst Jos Versteeg joins the Morning Brief.

Versteeg explains that the demand for ASML's products is not lacking, but rather, the order flow is "lumpy." He points to 2023 order inflows as an example, with the second half of the year witnessing order inflows of $13 billion — $9 billion of which was in the last quarter alone. Versteeg cautions investors not to read too much into these order inflow numbers, as they do not necessarily "express that the market is weak."

Furthermore, Versteeg notes that for the past two months, semiconductor sales have been declining, suggesting that the market could be "hesitating." Coupled with the order inflows reported by ASML, Versteeg understands why investors may be "shocked." However, he emphasizes that order inflow numbers do not accurately reflect the company's performance. Despite these short-term fluctuations, Versteeg remains "positive" on ASML's long-term prospects and has "no worries" about the company's future demand and profit success.

"There's a very strong long-term demand for semiconductors and ASML is in the right spot," Versteeg tells Yahoo Finance.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video Transcript

- Take a look at ASML one of the stocks that Ali was just talking about there. ASML shares are under pressure. Now this comes after Europe's biggest tech firms net sales fell nearly 22% compared to just a year ago. Now to break this all down, the tech giant's earnings and what it means for the broader chip sector, we want to bring in Jos Versteeg, Insinger Gilissen's equities senior analyst is here to discuss.

Jos, It's great to have you here on Yahoo Finance. But first, just give us your reaction to that drop that we're seeing in shares of ASML and what this really signals may be about lack of demand or maybe worry about demand here going forward?

JOS VERSTEEG: No. That's absolutely not the case. There's absolutely no lack of demand. And you already said it, that the order flow is always very, very lumpy. Just remember that in the last quarter of 2023, there was an order inflow of more than nine billion, and in the second half of the year, 13 billion. So it's just lumpy. And ASML already said for a long time that you never look too close to the order inflow because yeah, it doesn't say too much. It absolutely doesn't express that the market is weak at the moment.

- So do you think the market is getting it wrong the fact that we're seeing this drop of 5%? If you're not worried at all about that, this doesn't throw any cold water on the optimism for 2025.

JOS VERSTEEG: Yeah, absolutely. They also said it, and I'm absolutely not shocked by it. But if you look to the semiconductor monthly sales, like the SIA always produces, you'll see that the upturn is a little bit hesitating. We see for four months in a row, year on year growth. But the last two months, it was declining a little bit, the semiconductor sales.

So the market could be a little bit hesitating. And then when you see this order inflow of ASML, I can understand that people get shocked. But yeah. ASML already also said sometimes that it could be that there is an order, and they are already working on an order, and still the order is not officially checked in.

Sometimes even when they are on the point of exporting it to the client, it's still not signed. Because when you sign the order, you have to pay a downpayment, and sometimes it's difficult to pay that downpayment. So order inflow, I just say don't look at it. It's just the long term, and they were very, very positive about the long term.

Still for 2025, they said they only need 4 billion for the coming three quarters. So 4 billion per quarter, only 12 billion to get an revenue of about 35 billion in 2025, and that's 30% higher than 2024. So no worries for ASML for me.

- I think what a lot of investors are trying to figure out is how long of a tail does the AI trade have with relation to ASML in comparison to some of the other large semiconductor plays that are out there right now?

JOS VERSTEEG: Yeah. I think this will continue for many, many years. They already made an estimate for 2030, that in the coming years, the semiconductor market will double to more than a billion. 1,000 billion I think. So today, it's 500 billion. Worth so it will double in 2030, that will be a growth of more than 10%.

So the market is very good for semiconductors. There's lots of demand for logic in the AI chips but also for memory in the AI chips. High bandwidth memory. There's a lot of demand there. So I'm absolutely not worried about demand for ASML in the long run, especially when you look to AI.

But also, we see a very strong trend of electrification. We try to get our energy from windmills and from the sun. And you also need a lot of semiconductors for that. We see a strong trend in electric vehicles. So there's a very strong long term demand for semiconductors, and ASML is exactly in the right spot I think.

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