A Look At ASML's Q2 2023 Results

Watch List stock ASML (ASML) reported Q2 earnings last week. How is this maker of semiconductor lithography equipment holding up so far in 2023?

Results were slightly above estimates. Sales grew 27% year-over-year to €6.9 billion euros. ASML moved 107 new lithography units compared to 96 in Q1. Quarterly net bookings were €4.5 billion, above the €3.8 billion in Q1 but well below the €8.3 billion booked in Q2 last year. Roughly 1/3rd of bookings were for advanced EUV machines.

The bookings number kind of tells the story here. Management has commented that the semiconductor industry, after a sharp supply shortfall in 2020-22 due to COVID, has more than recovered and now sits at high inventory levels and low lithography utilization. This has blunted demand for the new equipment that ASML produces, at present. This isn't a major surprise - the semi industry is notorious for its wild supply and demand cycles.

The thing to keep in mind here is the bigger picture. The core thesis has not changed. Long-term, demand for semiconductors will continue to grow. Huge new applications like clean energy, AI, and potentially augmented reality (among others) will drive demand for next-generation chips that are smaller, more powerful, and less power-hungry. Only ASML makes the equipment to produce these chips.

Long-term guidance remains unchanged. ASML still sees €30-40 billion in sales by 2025, and €44-60 billion by 2030, topping out at gross margins in the 56-60% range (currently the firm has a 51% gross margin). Add on the 5.5% dividend hike announced this quarter, and almost €11 billion left on the current share buyback plan, and this continues to look like a strong investment candidate, at the right price.

What would that price be? Ultimately, I'm not seeing much to diverge from our existing fair value model. Tweaking the various parameters after Q2's results, I'm making a small adjustment, raising the fair value to $773 from $764. With a current stock price just under $700, ASML looks like an "OK" buy right now, but I'd like to see it dip a bit more before adding it to the Buy List.