Is ASML Stock a Buy, Sell or Hold at a P/E Multiple of 26.3X?

ASML Holding NV ASML, the world’s leading supplier of semiconductor manufacturing equipment, currently trades at a forward 12-month price-to-earnings (P/E) ratio of 26.29, significantly higher than the Zacks Semiconductor Equipment – Wafer Fabrication industry average of 21.92. This lofty valuation, combined with a recent 28.5% plunge in the stock price over the past three months, has sparked debates about whether ASML remains a worthy investment or has become overvalued.Image Source: Zacks Investment ResearchThe decline reflects investor concerns about the company’s softened outlook for the remainder of 2024 and 2025. Since reporting third-quarter earnings in mid-October, ASML shares have tumbled 24.1%, underperforming competitors like Lam Research LRCX, Applied Materials AMAT and Advanced Energy Industries AEIS. Advanced Energy Industries shares have risen 0.4%, while Lam Research and Applied Materials have declined 18.3% and 20.9%, respectively.Image Source: Zacks Investment ResearchASML’s Muted Guidance Weighs on SentimentASML’s third-quarter 2024 results showcased solid financial performance, with net sales of €7.5 billion and net income of €2.1 billion, representing year-over-year growth of 11.9% and 9.7%, respectively. Earnings per share (EPS) rose by 9.8% to €5.28, signaling operational efficiency.However, the company’s outlook for the fourth quarter and beyond has dampened investor enthusiasm. ASML guided fourth-quarter sales in the range of €8.8 billion-€9.2 billion, but its gross margin projection of 49-50% indicates persistent profitability challenges. Management also anticipates a slowdown in order intake for 2025 due to sluggish recoveries in the mobile and PC markets.Adding to the pressure are downward earnings estimate revisions by analysts, reflecting reduced optimism about ASML’s short-term growth prospects.Image Source: Zacks Investment ResearchASML’s High NA EUV Systems: A Double-Edged SwordASML’s pioneering High Numerical Aperture Extreme Ultraviolet (High NA EUV) systems are critical for manufacturing advanced chips required for artificial intelligence (AI) and high-performance computing. However, the ramp-up of this cutting-edge technology has strained margins.In the third quarter, ASML shipped two High NA EUV systems, with revenues expected to be recognized by year-end. Despite their importance for next-gen chip production, these systems come with high manufacturing complexity and significant capital investments, diluting margins by an anticipated 3.5% in the fourth quarter of 2024. This near-term profitability impact could continue as ASML scales the production of these systems.Macroeconomic Challenges Loom for ASMLGeopolitical tensions, particularly between the United States and China, pose a substantial risk to ASML. In the third quarter, China accounted for 47% of ASML’s lithography shipments. Escalating U.S. export restrictions on advanced semiconductor technologies could limit ASML’s revenue potential from this key market.Broader macroeconomic concerns, including inflationary pressures and slowing demand for semiconductors from the mobile, PC and memory markets, further complicate the outlook. The delayed recovery in these segments is likely to weigh on ASML’s short-term performance, even as the semiconductor industry prepares for a broader rebound.Why ASML is Still a Long-Term WinnerDespite the current challenges, ASML’s long-term growth story remains intact. As the global leader in EUV lithography, the company is integral to the production of advanced chips used in AI, 5G and high-performance computing. Its €36 billion order backlog underscores the continued demand for its cutting-edge equipment.ASML’s ability to align its product portfolio with emerging megatrends such as AI adoption, renewable energy and the digital economy positions it as a critical enabler of future technologies. The surge in global semiconductor fabrication plant construction will support ASML’s growth as these new facilities drive demand for its lithography equipment.Efforts to boost capacity, strengthen supply-chain partnerships and meet rising customer demand demonstrate ASML’s resilience and adaptability in an evolving market.Conclusion: Hold ASML Stock for NowWhile ASML’s short-term outlook appears clouded by margin pressures, muted guidance and geopolitical risks, the company’s dominant position in the semiconductor manufacturing ecosystem and alignment with long-term growth trends make it a stock worth holding.The current valuation premium reflects ASML’s industry leadership and technological edge, but near-term challenges may limit upside potential. For investors seeking exposure to the semiconductor boom, holding ASML stock allows participation in its robust long-term prospects while weathering temporary headwinds. For now, patience appears to be the best strategy. The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ASML Holding N.V. (ASML): Free Stock Analysis Report Lam Research Corporation (LRCX): Free Stock Analysis Report Applied Materials, Inc. (AMAT): Free Stock Analysis Report Advanced Energy Industries, Inc. (AEIS): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks