Anticipation: ASML's Ascendancy in the Next Five Years is Predicted. One Justification Unveiled.
Anticipation: ASML's Ascendancy in the Next Five Years is Predicted. One Justification Unveiled.
A number of stocks have profited from the AI boom, but ASML (ASML 1.38%) has been underperforming recently. The shares of this leading manufacturer of lithography equipment for semiconductors are currently trading below their pandemic-era high due to a slower-than-anticipated recovery and reduced guidance, which negatively impacted their stock price.
Nevertheless, the future outlook for the stock remains optimistic, thanks to the company's strong competitive advantage. As the sole provider of extreme ultraviolet lithography (EUV) machines, which are essential for manufacturing the most advanced chips, ASML holds a significant position in the industry.
In the age of AI, demand for EUV machines is likely to increase. While the demand may fluctuate due to their high cost and cyclical purchasing patterns, these setbacks have not dampened ASML's expectations for growth.
Positive Signs Ahead
Although AI has been the main focus in the semiconductor industry, it only accounts for a small fraction of chip production. However, ASML anticipates AI to drive growth in the coming years, as its key customers, which include leading foundries, require advanced technology to manufacture the most sophisticated chips.
During its recent Investor Day conference, ASML projected that they could reach annual revenue of 44 to 60 billion euros by 2030, with a gross margin of 56%-60%. This substantial revenue growth, accompanied by a 51% current gross margin, suggests that both gross profit and compound annual growth rate are set to increase.
Is ASML a Good Investment?
Should ASML meet its growth projections, the stock is likely to experience significant gains in the next five years. Even if the company achieves the midpoint of its guidance, its profit margins are expected to expand as the business expands.
Currently, ASML's shares trade at a forward P/E of 30, which represents an attractive price for a stock with a wide economic moat and a clear growth trajectory to capitalize on the AI boom. Consequently, ASML's recent struggles present a favorable buying opportunity for investors.
In light of ASML's strong competitive advantage and projected growth due to the increasing demand for EUV machines in the AI era, some investors might consider allocating their finance to investing in ASML shares. If ASML successfully achieves its revenue projections, the money invested in their stocks could potentially yield significant returns over the next five years.