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ASML’s Explosive Growth Mirrors AI’s Unrelenting Rise

Last Updated January 25, 2024 9:14 AM
Giuseppe Ciccomascolo
Last Updated January 25, 2024 9:14 AM

Key Takeaways

  • ASML beat analyst expectations for both the fourth quarter and the full year in 2023.
  • The company’s strong performance was driven by strong demand from China.
  • ASML is optimistic about the long-term prospects of its business, citing the increasing demand for AI technology.

ASML, a leading semiconductor equipment company, exceeded both top and bottom-line expectations in 2023. However, it forecasts its revenue for 2024 to be similar  to last year’s.

Key highlights include fourth quarter net sales of €7.2 billion, surpassing expectations  of €6.9 billion; a net profit of €2.05 billion, beating expectations of €1.86 billion; and a gross margin of 51.4%. First quarter net sales are expected between €5.0 billion and €5.5 billion.

An Impressive Growth

ASML  is the sole producer of extreme ultraviolet lithography (EUV) chip-making equipment, serving as a barometer for the industry’s overall health. The sector, which has previously endured a prolonged downturn, is currently witnessing a remarkable turnaround.

During the fourth quarter, ASML received €9.2 billion worth of orders, dwarfing analysts’ estimates of €3.6 billion. This surge in demand propelled last quarter’s profit to exceed expectations by 13% compared to the previous year.

Source: Bloomberg
ASML orders recovery

In response, investors drove ASML shares  up by 10% on Wednesday, January 24, 2024. This marked the largest single-day gain since November 2022.

China Love ASML

During the last quarter, ASML saw significant support from its Chinese clientele, with Chinese companies accounting for more than a third of its sales. This surge was driven by a rush to equip factories ahead of impending chip export regulations from the United States and the Netherlands.

However, as stricter restrictions loom later this year, ASML anticipates a decrease in orders from China. Nevertheless, steady demand for AI-compatible equipment in other regions may offset this decline, leading ASML to expect flat sales for the year.

Source: Bloomberg
ASML sales to China increased ahead of export controls

This love from China for ASML chips stands in opposition to what happened to Nvidia, another big chip producer.

Nvidia, once a dominant force in American graphics processing units (GPUs), is now facing intensified competition from Chinese artificial intelligence (AI) chipmakers. These firms are crafting AI chips tailored specifically for the Chinese market. And are swiftly penetrating the country’s burgeoning AI industry.

Several factors underpin the ascent of Chinese AI chipmakers. Firstly, China’s steadfast governmental commitment to AI development, backed by substantial investments and a supportive regulatory framework, is driving progress. Secondly, the country boasts a sizable and expanding market for AI chips, fueled by numerous tech giants integrating AI into their offerings. Lastly, China benefits from a robust talent pool of engineers and scientists proficient in AI chip design.

How Will AI Impact Future Performance?

ASML is optimistic about the long-term prospects of its business. It cited the increasing demand for computing power driven by AI technology. Similarly, TSMC, the primary chip supplier for Nvidia, expects a 20% revenue increase this year following a slight dip last year.

The Semiconductor Industry Association has also noted  the impact of AI. It reported a rise in global chip sales in November, marking the first increase in over a year.

Also OpenAI’s CEO and founder, Sam Altman, embarked on an ambitious mission to secure substantial funding from global giants for his secretive chip project, known as Tigris. Reports indicate  that Altman’s visits to the Middle East last year were strategic efforts to garner financial backing for Project Tigris, a clandestine venture revealed by insiders in the same year.

With a vision of creating an AI-focused chip powerhouse to challenge Nvidia’s dominance in the fiercely competitive semiconductor arena, Altman’s ambitions for Tigris were bold and far-reaching.

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