ASML’s Market Plunge: Impact and Investment OpportunityASML’s Market Plunge: Impact and Investment Opportunity Dutch chipmaker ASML Holding recently experienced its sharpest weekly decline since December 2002, dropping 17%. The plunge was triggered by reports of potential U.S. restrictions on advanced chip exports to China. Impact of Restrictions on ASML: Analysts at Bank of America estimate that a ban on servicing equipment in China could reduce ASML’s revenue by 3% or less. If restrictions are limited to specific customers, the impact could be close to 1%. Bank of America’s Assessment: Despite the market’s overreaction, Bank of America believes the impact of restrictions can be manageable. The bank emphasizes that China accounts for a significant 49% of ASML’s Q2 revenue, and this trend is not likely to change drastically in the near future. Investment Opportunity: Bank of America considers the recent sell-off as a strategic buying opportunity. The bank recommends ASML as its “top pick” in the semiconductor sector and maintains a price target of €1,302, representing a 60% upside potential. ASML’s Strengths: Despite the regulatory concerns, ASML’s fundamental strengths remain intact. The company’s strong financial performance, investments in research and development, and innovations in EUV technology position it well for future growth. Cautions for Investors: Investors should consider the geopolitical and regulatory landscape, which could introduce volatility. Nevertheless, for investors seeking exposure to the critical semiconductor industry, ASML’s recent price drop may present an attractive entry point.
ASML Holding saw its biggest weekly decline since 2002, down 17%, on potential US restrictions on chip exports to China. Bank of America sees the impact as manageable, suggesting the sell-off could be a buying opportunity.
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Dutch chipmaker ASML Holding suffered its biggest weekly decline since December 2002, falling 17% last week. The sharp decline followed reports that the U.S. government was considering further restrictions on advanced chip exports to China. The measures would even target non-U.S. companies that use U.S.-made technology, under the Foreign Direct Product Rule.
American chipmakers have argued that the restrictions unfairly disadvantage them while other countries continue to conduct business as usual, particularly as the U.S. presidential election approaches. The proposed restrictions are expected to significantly affect both ASML and Japan’s Tokyo Electron.
On July 17, Bloomberg reported the news, which led to an 11% drop in ASML shares, marking the biggest one-day drop since March 18, 2020, when the global lockdown began. ASML’s market value fell from €400 billion to €326 billion, putting it in third place among Europe’s largest companies, behind Louis Vuitton Moet Hennessy.
ASML reported second-quarter financial results last week, reporting stronger-than-expected earnings and revenue. However, the possibility of increased U.S. restrictions on ASML’s chip exports to China triggered a wild stock selloff that failed to curb the positive earnings.
According to Bank of America, the impact can be manageable
In light of the violent market reactions affecting Europe’s largest tech company, analysts at Bank of America assessed the potential impact of these new restrictions on ASML’s operations. Equity analyst Didier Scemama noted: “China service risk is manageable.”
The expert estimated that a ban on servicing equipment in China could reduce ASML’s revenue by 3% or less. If the restrictions are limited to certain customers, the impact on revenue could be closer to 1%.
Given ASML’s revenue of €27 billion in 2023, Bank of America estimates the potential impact of further restrictions could be between €270 million and €770 million.
The investment bank stressed that ASML’s significant exposure to China, accounting for 49% of Q2 revenue, reflects Beijing’s growth in investment in the sector. Bank of America does not expect a substantial reduction in this trend in the near future, despite ongoing geopolitical tensions.
Bank of America forecasts 2025E revenue of €40 billion and earnings per share of €34.7 billion (compared with previous estimates of €39.8 billion and €34.9 billion, and consensus estimates of €36.2 billion and €31.9 billion).
Scemama reiterated that ASML is his “top pick” in the semiconductor sector. He suggested that the recent downturn presents a strategic buying opportunity ahead of the Capital Markets Day on November 14, at which ASML is expected to raise its 2030 revenue targets.
Bank of America maintains a price target of €1,302 on ASML, which represents a 60% upside from ASML’s closing price on Friday, July 19.
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In summary, while the market has reacted strongly to news of potential export restrictions, ASML’s fundamental strengths suggest the sell-off may be overdone.
For investors considering ASML, the recent price drop could present an attractive entry point, given the company’s strong financial performance and the critical role it plays in the semiconductor industry.
ASML’s investment in research and development ensures that it remains at the forefront of technological innovation. The company’s continued improvements in EUV technology and development of next-generation lithography machines are crucial to maintaining its market leadership and driving future growth.
Nevertheless, investors should consider the broader geopolitical context and regulatory landscape, which could add further volatility in the near term.
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