ASML: Ruling Tech Land

TLDR:

• ASML Holding N.V., a Dutch group in the semiconductor sector, is experiencing sales growth despite a downturn in new orders.
• ASML has a technological monopoly in selling ultraviolet lithography equipment to chip and circuit manufacturers, resulting in high profit margins.

The Dutch group, ASML Holding N.V., has managed to avoid the challenges facing the semiconductor sector in recent quarters. While new orders have declined, sales have increased by 30%. This growth comes despite a downturn in the industry due to the pandemic. ASML holds a technological monopoly, selling ultraviolet lithography equipment to chip and circuit manufacturers. This unique position allows the company to achieve high profit margins, with earnings per share expected to reach EUR19.9 in 2023. The company’s current valuation is nearly forty times earnings, well above the historical average. Despite the decrease in new orders, the market seems to be disregarding this factor. ASML has also seen an impact on cash generation due to increased working capital requirements. However, the company still generated EUR3.3 billion in free cash flow. The company’s financial position remains strong with between EUR2 and EUR2.5 billion in excess cash. Furthermore, ASML has achieved a return on equity (ROE) of 70%, which is significantly higher than previous cycles. This outperformance raises questions about the sustainability of their success. Overall, ASML Holding N.V. has established a strong position in the semiconductor industry and continues to experience growth despite market challenges.