Summary
Highlights
ASML has experienced a significant rebound, up 40% year-to-date, after being down nearly 45% last year. While historically a strong performer, its current forward P/E ratio of over 36 suggests it may be overvalued compared to its historical average and intrinsic value. The PEG ratio of 2 is also higher than desirable, especially when compared to competitors like NVIDIA and Micron.
ASML has consistently outperformed management estimates, beating EPS and revenue targets in seven out of the last eight quarters. However, geopolitical tensions, particularly regarding tariffs with China (a significant market for ASML, accounting for 27% of revenue), have introduced uncertainty. Potential delays in shipments due to these tensions are a key concern to watch in the upcoming earnings report.
Despite its strong market position with EUV machines, ASML faces potential long-term challenges from China's efforts to develop its own domestic EUV technology. While not an immediate threat, this could erode ASML's moat in the future. The company's investment in Mistral AI, a European AI startup, is a strategic move to align with future chip demand driven by AI growth.
Compared to other semiconductor companies like Taiwan Semiconductors and Lam Research, ASML has been the worst performer over the last 5 and 10 years, despite its own impressive gains. However, its financial health remains strong with high ROIC (41%), excellent gross (53%) and net (30%) margins, and a very low net debt to EBITDA ratio, indicating a robust balance sheet.
A DCF model suggests an intrinsic value of $909, indicating a 7% downside from its current price if a 12% growth rate is assumed. To achieve a 10% margin of safety, the stock would need to be around $818. Different growth rate assumptions significantly alter the valuation, making it crucial for investors to consider their own growth expectations. Wall Street analysts currently see no significant upside from current prices for the next year.