Dutch company ASML Holding (NASDAQ: ASML) outperformed the S&P 500 this year, returning 26%, while the S&P 500 returned 19%.
Despite recent rules that prevent the company from selling and servicing new machines in China, the company’s Q2 earnings report sounded more optimistic; ASML raised its guidance for net sales growth this year to around 30% compared to the previous guidance of more than 25%.
The company said this was due to strong sales of its deep ultraviolet lithography systems (DUV), which are an older technology than EUVs.
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An EUV machine monopoly
ASML is the only company in the world as of 2023 that builds extreme ultraviolet (EUV) lithography machines, capable of producing extremely small chips — 5 nm and 3 nm — for chip manufacturers like TSMC (TSM) and Samsung (OTCPK: SSNLF).
Each EUV machine costs more than €160 million ($176 million). The company sold 29 EUV machines in the first half of this year.
ASML expects revenue to continue to rise due to new demand in the US, Taiwan, and South Korea, while projecting sales to reach €24-30 billion ($26.4-33 billion) in 2025.
ASML risk factors
Dutch export rules restrict ASML from servicing chip equipment in China or exporting new EUV machines, according to a Bloomberg report. China represents 13.8% of ASML’s revenue in FY22, which could slow ASML’s growth in the near term.
Bernstein downgraded ASML’s shares on Friday, July 28, to market perform from outperform due to “softening demands” for 2023 and 2024.
Despite that, Bernstein’s analyst Sara Russo wrote in an investor note that the company may exceed demand for EUV machines by 2025. But “at this point, we believe the cyclical risk for the near-term outweighs the upside,” Russo wrote.
Technical chart shows price unlikely to make new all-time high
The technical charts seem in line with what the analysts predict.
The price makes new highs in July while the MACD indicator makes new lows on the daily chart. This divergence typically points to a price reversal.
The price has also formed a broadening wedge pattern, which is mostly a neutral pattern, meaning the price can break out on either side.
Given that we’re near the $750 resistance level, we may see the price trade around $700 until a strong catalyst pushes the price higher.
ASML SMA and EMA stock price chart. Source: StockCharts.com
The weekly chart shows the price has bounced off of the upper trendline. This means we could see a further downside in the coming months. For investors looking to accumulate, this could be the time to do so.
ASML upper trendline weekly stock price chart. Source: StockCharts.com
To invalidate the bearish price outlook, the price needs to break $800 and hold there.
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