Should you buy ASML stock after its latest crash?

ASML Holding (NASDAQ: ASML) released its third-quarter 2024 results a day earlier than expected, delivering a rude shock to investors who had expected robust growth on the back of growing demand for semiconductors on the back of the booming chip market artificial intelligence (AI).

Instead, the Dutch chipmaking equipment supplier reported a sharp decline in reserves and also moderated its expectations for 2025. As a result, ASML shares fell 16% after of the earnings report. Let’s take a closer look at why ASML’s guidance hasn’t been as strong as expected, and see if the stock’s plunge could be an opportunity for savvy investors to buy into the semiconductor giant.

ASML’s cautious guidance worries investors

ASML reported third-quarter revenue of €7.5 billion, along with earnings per share of €5.28. The company’s revenue rose 12% year-on-year, while its bottom line rose nearly 10%. In US dollar terms, ASML’s revenue was $8.2 billion, while earnings were $5.80 per share.

The numbers were well ahead of analysts’ expectations. Consensus estimates were projecting $5.36 per share in earnings for ASML on revenue of $7.87 billion. However, the company’s net bookings for the quarter and a weaker-than-expected forecast for 2025 had investors ignoring the earnings beat and hitting the panic button.

ASML recorded net reserves of 2.63 billion euros last quarter, down from 5.57 billion euros it received in the second quarter. The number of bookings was almost flat year-on-year. Analysts were looking for 5.39 billion euros in ASML’s reserves, believing that strong demand for AI chips will boost spending on the advanced semiconductor manufacturing equipment that ASML sells.

However, this was not the case as AI strength was offset by a slower than expected recovery in other semiconductor end markets. ASML management has noted that “the recovery is more gradual than expected,” and expects the trend to continue next year as well. At the same time, ASML says certain customers are slow to ramp up production of chips based on new nodes, while memory makers are cautious about their capacity upgrades.

This explains why ASML expects its revenues in 2025 to reach between 30 billion and 35 billion euros. This was disappointing for investors, as ASML had originally expected 2025 sales to come in at the higher end of the €30 billion to €40 billion range.

Based on ASML’s 2024 revenue forecast of €28 billion, its top line is on track to rise 16% at the midpoint of the guidance range. The bright side is that the company’s 2025 guidance points to a nice improvement over the 1% growth it’s on track to deliver this year. But is this potential acceleration in ASML’s growth next year a good reason to buy the stock right now?

There may be a solid buying opportunity just around the corner

Global spending on semiconductor equipment is expected to increase by 3.4% in 2024 after a 1.3% decline last year. More importantly, semiconductor spending is expected to pick up again in 2025, growing at a much stronger rate of 17% to $128 billion. Industry association Semiconductor Equipment and Materials International (SEMI) attributes this spending acceleration to a recovery in the semiconductor capital equipment market that began in the second half of 2024.

As such, the ASML end market is expected to be in much stronger shape next year thanks to “strong fundamentals and growth potential that support the diverse range of disruptive applications emerging from the artificial intelligence wave,” as SEMI President and CEO Ajit Manocha noted. . While data center chips have been the driving force behind growing semiconductor spending of late, the emergence of cutting-edge AI devices such as smartphones and personal computers should open up incremental growth opportunities for semiconductor sales in the future.

Fortune Business Insights estimates that the size of the cutting-edge AI market could grow from $20 billion last year to nearly $270 billion by 2032 thanks to the growing adoption of AI in various industries such as automotive, manufacturing, healthcare, retail, energy and others. As a result, demand for semiconductors deployed in these industries should improve over the long term, creating a need for more ASML machines.

As such, smart investors looking to add semiconductor value to their portfolios would do well to keep ASML on their radar. The stock trades at 38 times trailing earnings after its last pullback, and it might be a good idea to buy its stock if it’s available at a cheaper valuation, thanks to the central role it plays in the global semiconductor industry.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions and recommends ASML. The Motley Fool has a disclosure policy.