Chip machine maker ASML is about to develop right into a $ 500 billion enterprise subsequent yr, tech traders predict
Employees assemble an ASML NXT1970Ci photolithography machine at the ASML Holding NV plant in Veldhoven, Netherlands.
Jasper Juinen | Bloomberg | Getty Images
LONDON – ASML, a Dutch company that makes high-tech machines for semiconductor manufacturing, will increase its market value from $ 302 billion to over $ 500 billion over the next year, according to two technology investors.
Nathan Benaich, founder and general partner of the boutique VC firm Air Street Capital, and Ian Hogarth, who sold his AI start-up Songkick to Warner Music Group, wrote in their annual State of AI report on Tuesday, that Europe’s largest technology company is the little-known linchpin of the global semiconductor industry.
Established in 1984, ASML provides chip manufacturers with the hardware, software, and services necessary to mass-produce patterns on silicon using a method called lithography.
It is the only company in the world to offer the extreme ultraviolet lithography equipment that TSMC needs to make the smallest and most sophisticated chips.
Each EUV machine has over 100,000 parts and costs $ 150 million. They are shipped in 40 freight containers or four jumbo jets.
Closing the gap
Several chip companies have shot up their share prices after the coronavirus pandemic led to a global chip shortage, but ASML’s share price still has some room for growth, Hogarth told CNBC.
He said ASML’s market cap isn’t on the order of Nvidia or TSMC because it’s in Europe, where the market rates high tech companies a little lower, and because their technology is more behind the scenes.
Nvidia is currently valued at $ 521 billion while TSMC is valued at $ 533 billion.
“With people looking for alpha when investing in this trend where semiconductors are becoming increasingly important for global supply chains, this (ASML) seems like an obvious candidate,” said Hogarth.
ASML’s growth is being driven by the desire of certain countries to manufacture onshore chips and reducing their dependence on other countries. The vast majority of the world’s chips are currently made in Asia.
“If China wants to build the equivalent of what TSMC has today, or some of America’s leading semiconductor companies, they have to buy a lot of these (EUV) machines,” Hogarth said. “The more countries view this technology as part of their key sovereignty, the more machines are sold.”
Last month, ASML said it expected a sales boom in the next decade. It predicts annual sales will reach 24 to 30 billion euros ($ 28 to 35 billion) by 2025, with gross margins between 54% and 56%. The forecast is well above the previously forecast range of 15 to 24 billion euros.
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“We see significant growth opportunities beyond 2025,” the company said, adding that it expects annual revenue growth of around 11% between 2020 and 2030.
According to ASML, “global megatrends in the electronics industry” in conjunction with “a highly profitable and extremely innovative ecosystem” should further stimulate growth in the semiconductor market.
It added that growth in semiconductor markets and “increasing lithography intensity” are driving demand for its products and services.
In the past 12 months, ASML’s share price on the Amsterdam Stock Exchange rose from EUR 328 to EUR 646 last Friday and reached a high of around EUR 753 on September 23.
Not all are so bullish
In a September 28 notice to investors, New Street Research analysts argued that “half-life expectations are high” and that ASML is “capped” in 2022 as there is “a supply restriction on EUV”.
The company has a positive five-year outlook for ASML, but has “tactically” downgraded the stock to “neutral” for the time being.
UBS also has a neutral rating for the ASML share elsewhere. In a September 29 notice to investors, investment bank analysts said, “We remain very confident of ASML’s growth potential over the medium term, but … we are struggling to see convincing uptrends for the stock over a twelve-month period.”
Hogarth said he believes analysts are ignoring the “geopolitical dimension” and not recognizing how much money nations are spending building their sovereignty over semiconductors.
Last year, Benaich and Hogarth predicted that Nvidia’s acquisition of British chip designer Arm would be blocked by regulators. Shortly after delivering their forecast, regulators around the world announced a series of investigations into the deal that are still ongoing.
This year, they also predict a “wave of consolidation” in the AI semiconductor industry, with “at least one of Graphcore, Cerebras, SambaNova, Groq or Mythic being taken over by a large tech company or semiconductor.” Official.”
They also believe that Alphabet’s DeepMind artificial intelligence laboratory will make a “major research breakthrough in the natural sciences.”
Disclaimer: Nathan Benaich has personal interests in ASML stock. Ian Hogarth doesn’t have any.