ASML Earnings Preview | The Semiconductor Giant's Earnings Will Set the Tone for the Entire Sector This Quarter

ASML Holding will release its earnings on October 16th. Analysts expect ASML's revenue to grow by 7.31% and EPS to increase by 1.08% year-over-year, reversing the decline in EPS seen in the previous two quarters. Bloomberg analyst Masahiro Wakasugi said that ASML might meet analyst estimates for 3Q sales and operating profit as services sales were probably up versus a year earlier. He mentioned that the focus will be on its 3Q order bookings, which could be comparable to the €5.6 billion seen in 2Q.

▶ ASML's earnings will become a barometer for the semiconductor industry

Although ASML's lithography machines are acclaimed as the crown jewels of manufacturing, the company's fiscal report is often overlooked. Since its earnings are released earlier than those of other semiconductor companies, the company often led to speculation about trends across the entire supply chain.

In previous quarters, ASML's earnings below expectations have often triggered significant adjustments in the entire semiconductor market. Therefore, even non-ASML stakeholders should pay attention to the company's upcoming report.

▶ What happened with ASML in the latest quarter?

ASML delivered more of its most advanced lithography machines to its customers in the third quarter. Intel recently announced that it has completed the assembly of the second High Numerical Aperture EUV lithography machine. Additionally, in September, ASML delivered the first High-NA EUV lithography machine to TSMC, ASML's largest customer. The Taiwan company has seen accelerated growth in recent months, meaning that this foundry factory will have more cash to increase capital expenditures.

Masahiro Wakasugi suggests that ASML may increase shipments of its new EUV tool model, which features higher selling prices, potentially boosting 3Q sales and operating profit.

▶ Have investors become overly pessimistic about ASML?

The investor sentiment towards ASML has notably shifted towards bearish over the summer. JP Morgan analyst Sandeep Deshpande highlights several factors contributing to this shift, including Intel's reduced capital expenditures, the sluggish rebound in the consumer semiconductor market, and the impact of China restrictions on semiconductor equipment firms.

Deshpande contends that the prevailing pessimistic long-term outlook on ASML is exaggerated. He points out that 1) the demand for High Bandwidth Memory, which is lithography-intensive, should boost lithography usage in memory production; 2) the transition to High-NA systems expected in 2026 will likely increase lithography intensity in logic production as well; and 3) the anticipated reduction in China's market share from its peak in 2024 is already factored into forecasts, mitigating the impact of any potential declines.

Deshpande predicts that ASML's guidance for 2025, when announced, will redirect attention towards 2026. Therefore, the specifics of the 2025 guidance will be less critical, even if it does not approach the lower end of expectations since ASML will project growth for 2026.

Further, Deshpande anticipates a significant surge in order intake for ASML during one of the quarters between 3Q24 and 1Q25, related to preparations for 2026. He also notes that the upcoming Corporate Management Day on November 14th should serve as a positive catalyst for ASML’s stock. During this event, the company might not only clarify its stance for 2025 but also potentially revise its long-term guidance upwards for 2030.

Source: Market Chameleon

Despite fluctuations in ASML's earnings, in recent years, except for 2020, it has continuously increased its payout ratio and dividends. Although dividends are not the main factor in evaluating tech stocks, this trend demonstrates the company's confidence in the future.

▶ What trading opportunities will there be after ASML's earnings are announced?

In recent quarters, ASML often experienced a decline in its stock price on the day it announced its earnings. On July 17, its stock price fell by 12.7% after the second quarter earnings were released, and dragged down the entire sector.

However, ASML is at the very top of the semiconductor manufacturing chain, and there is often a significant time lag before downstream demand is reflected in upstream orders. Additionally, the delivery cycle of lithography machines is long and prone to delays, and AI chips currently do not use the most advanced processes. This leads the market to mistakenly assume a direct correlation between ASML's past weak earnings and the whole sector's demand. Therefore, if ASML's earnings are slightly below expectations and cause a downturn in other semiconductor companies, it might actually be an opportunity to buy the dip in the industry.