A Small Hiccup In Orders Means Little For ASML's Future

I hope ASML (ASML) shareholders will forgive me for saying I hoped for a more extreme reaction to second quarter results - a quarter in which ASML posted a modest revenue miss, a modest operating margin miss, and the weakest order number in over four years - as an opportunity to buy in at a reasonable (or at least more reasonable) price would be very welcome. Rationality has prevailed, though, and while there was a bit of a sell-off, the shares have already regained most of the lost ground.

ASML remains a unique story in the semiconductor equipment space as the only provider of extreme ultraviolet (or EUV) lithography systems, a key enabling technology for advanced semiconductor production. With leading-edge applications like smartphones, switches, and so on only just starting to use chips that require EUV, I see significant growth in the years ahead.

The "but", as long-time readers of mine can no doubt anticipate, is the valuation. There's just no conventional approach by which ASML is cheap. The best I can do is point to other secular growth stories that trade at even richer multiples (like Amazon (AMZN), Nvidia (NVDA), and Salesforce.com (CRM)) and suggest that ASML could still have some room to run, but that reminds me too much of the sort of justifications used to support ever-higher price targets in prior bubbles.

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A Small Hiccup In Orders Means Little For ASML's Future