Artificial intelligence (AI) has been the driving force behind the current bull market since 2023, a fact well-known to most investors.
The recent launch of OpenAI’s ChatGPT has ignited an industry-wide arms race, with generative AI technology potentially as transformative as the internet itself. While stocks linked to AI, such as those in the semiconductor sector, have shown robust performance, some have lagged behind.
Nvidia recently reached another all-time high due to surging demand for its new Blackwell platform. However, not all AI stocks have kept pace with the Nasdaq Composite, which almost hit an all-time high this week. ASML (NASDAQ: ASML) is a prime example, currently down 34% from its peak this year after a disappointing third-quarter earnings report that resulted in a 16.3% drop in the stock price.
Image source: Getty Images.
Understanding the Discount on ASML Stock
ASML holds a unique position in the semiconductor industry as the exclusive maker of extreme ultraviolet (EUV) lithography machines used in producing the most advanced, smallest-node chips.
Investors anticipated a business rebound for ASML following previous macro challenges like high interest rates and inflation. The company was expected to benefit from the global expansion of chip fabs as countries and industries gear up for the AI era. However, the recent guidance from ASML suggested a slower recovery than initially forecasted, citing weakness in key segments and cautious customer behavior.
Turning Challenge into Opportunity
ASML’s current setback appears to be more of a macro-level issue than a reflection of poor execution by the company itself. While the AI sector shows promise, legacy-chip businesses face hurdles, evident in the struggles of key customers like Intel and Samsung.
For instance, Intel announced a major restructuring, challenging its foundry expansion plans, whereas Samsung is experiencing delays in Texas fab production due to yield issues. Furthermore, ASML has significant exposure to China, where economic growth remains subdued post-pandemic.
Despite the scaled-back revenue forecast, ASML remains optimistic about 16.1% growth at the midpoint, along with improving margins. With its EUV technology, strong margins, and growing AI demand, ASML is poised for long-term success.
Missed opportunities in purchasing high-flying stocks can be disheartening. However, our analysts occasionally issue “Double Down” recommendations, identifying companies on the cusp of significant growth. Act fast before it’s too late to capitalize on the potential opportunities.