- ASML reflects a challenging quarter with weaker orders impacting guidance.
- Despite reaffirming guidance, ASML anticipates a significant upturn that might not materialize.
- While there’s potential for a buy-the-dip opportunity, the road ahead may still hold lower prices for investors.
ASML finds itself at a crossroads following a challenging first quarter that sounded alarm bells for semiconductor investors. The company faced a setback as new orders failed to meet expectations, casting a shadow over the semiconductor industry’s future prospects. While orders for cutting-edge EUV technology showed promise, they weren’t sufficient to sustain the lofty projections fueled by the artificial intelligence boom.
This shortfall hints at potential disappointments in chipmakers’ upcoming results and forecasts, possibly dragging the tech sector into a protracted downturn. Stocks like Advanced Micro Devices and NVIDIA, which have experienced significant gains over the past year, now find themselves in a precarious position. Meanwhile, players closely linked to ASML’s business, such as Intel, Taiwan Semiconductor, and Samsung, are also bracing for extended declines.
ASML’s Quarterly Performance and Guided Path
ASML reported a subdued performance in Q1, with a 21% revenue drop compared to the previous year, primarily due to weakened new and used equipment sales. New equipment sales plummeted by 42%, while used equipment sales saw a 64% decline. Despite expectations for sequential growth in Q2, net bookings plummeted by 60%, signaling caution among chipmakers.
The company’s margins held relatively steady, with a gross margin dip of 40 basis points, which was lower than anticipated, resulting in better-than-expected bottom-line figures. The GAAP earnings of $3.31 surpassed the consensus by $0.40, although comparisons may be skewed by FX translation. These results were robust enough to sustain dividends and dividend growth, with a final payment for 2023 pegged at $1.86, converting to $1.06.
While ASML’s guidance remains optimistic, there’s a looming question mark over its expectation of a substantial upswing in the latter half of the year. Although Q2 revenue is projected to reach $6.07 to $6.6 billion with a stronger performance in the second half, the full-year outlook remains flat compared to the previous year, cautioning investors that 2024 might be the year of resurgence driven by advanced technologies like AI supported by global demand and initiatives like the CHIPs Act.
ASML’s Financial Landscape and Investor Returns
ASML’s dividend yield, though not substantial, offers consistent and reliable payouts, backed by a sound and secure balance sheet. With low leverage and controlled liabilities, the company’s cash flow facilitates share buybacks. However, recent dilutive actions have offset these repurchases, leading to a rising share count.
Analysts remain supportive of ASML in the current market environment, but the trajectory might be curbed following the release of results and guidance. While 2024 holds promise with increased price targets and upgrades, the timing of the foundry market recovery may have been overestimated, limiting further potential upside to around 5% post-release decline.
ASML Faces Market Resistance and Potential Declines
Following the Q1 release, ASML’s stock dipped by 5% in premarket trading, revealing robust resistance at recent highs that could trigger a market reversal. Critical support lies near the $885 mark, and if breached, the stock may test lower levels around $800. Despite this, a downward repricing could present a value investment opportunity, awaiting a rebound in equipment sales to drive traction.
