ASML's Warning Disturbs Global Chip Investors

By Toby Sterling and Nathan Vifflin

AMSTERDAM - Investors and market analysts are reassessing their views on ASML, a leading manufacturer of computer chip equipment, following the company's recent announcement of lowered financial expectations for 2025. This adjustment was attributed to weaknesses in markets outside of artificial intelligence (AI) and delays in order placements.

ASML holds a critical position in the tech industry as Europe’s most valuable technology firm, being a key supplier to chipmakers. However, concerns have surfaced regarding its near-term sales performance and the company’s ability to maintain growth rates that surpass the wider market trends.

The company's revised guidance led to a significant drop in its stock price, marking the largest selloff seen in ASML shares in two decades. On Wednesday morning, the stock declined by 4.9%, trading at 635.60 euros, a stark contrast to its peak of over 1,000 euros in July, which followed a decade of growth fueled by ASML’s commanding position in the market for lithography tools essential for creating semiconductor circuits.

Following a surge in demand during the pandemic, ASML has noted that several customers are now postponing investments in new plants and upgrades. This includes manufacturers of logic chips, which are vital components for smartphones, PCs, and various other devices. Additionally, companies producing memory chips are also planning to limit expansion projects and are depending on their existing technologies for an extended period.

Nick Rossolillo from Concinnus Financial commented, "Investors should manage their expectations regarding any individual company, particularly an upstream equipment supplier that relies heavily on the spending decisions of its manufacturing clients."

While ASML did not specify which clients were responsible for the guidance reduction, analysts have turned their attention to TSMC, the company’s largest customer, known for making both AI chips for Nvidia and smartphone chips for Apple. Analyst Michael Roeg from Belgian investment bank Petercam Degroof remarked, "The robust sales trends at TSMC do not accurately reflect the overall condition of the semiconductor industry." He further pointed out that TSMC has kept its capital expenditure relatively low in 2023 and may continue this trend into the following year, likely due to suboptimal utilization of their plants.

Looking at other ASML clients in the logic chip sector, Intel announced in August that it would reduce capital spending by $10 billion by 2025, while Samsung has faced obstacles with its factory under construction in Texas. Approximately 25% of the spending by chipmakers on manufacturing tools is directed towards ASML, although some analysts predict that this share could decline in the future.

ASML's executive team is set to discuss these developments with analysts during a conference call later on Wednesday.

($1 = 0.9190 euros)

ASML, investors, chips