ASML (ASML) Stock Before Q2 Earnings: To Buy or Not to Buy?

Core Viewpoint - ASML Holding N.V. is expected to report second-quarter 2024 results on July 17, reflecting its portfolio strength and growing investments, despite facing market uncertainties and inflationary pressures [1] Financial Expectations - ASML anticipates revenues between €5.7 billion and €6.2 billion for Q2 2024, while the Zacks Consensus Estimate is $6.35 billion, indicating a 15.6% decline from the previous year [1] - The Zacks Consensus Estimate for Q2 earnings is $3.87 per share, reflecting a 27.9% decrease from the year-ago quarter [1][2] Earnings Surprise History - ASML has a strong earnings surprise history, having outperformed the Zacks Consensus Estimate in the last four quarters with an average beat of 10.21% [2][3] Industry Context - The semiconductor industry is rebounding due to growing demand and optimism surrounding artificial intelligence (AI), positively impacting wafer fab equipment and ASML's products [5] - The adoption of advanced nodes for digital infrastructure, including 5G and AI, is expected to drive demand for ASML's offerings [5] Product and Service Performance - ASML's investments in Extreme Ultraviolet (EUV) infrastructure are likely to enhance its performance, with strong contributions from its service business [6] - The Installed Base business is benefiting from the uptake of low numerical aperture (NA) machines, particularly the NXE:3800, which offers high productivity [6] Market Challenges - Market uncertainties, including U.S.-China tensions and high inventory levels, are anticipated to negatively impact ASML's quarterly results [7] - Weak momentum among logic customers is expected to be a concern as they adjust to previous capacity additions [7] Stock Performance and Valuation - ASML's shares have increased by 43.3% year-to-date, slightly underperforming the industry average of 44% [8] - The company is trading at a forward 12-month P/E of 41.64X, above the industry average of 34.14X, indicating a stretched valuation [9] Investment Outlook - ASML is well-positioned to benefit from global megatrends in the electronics industry, with management expecting a better second half of 2024 and a cyclical upturn in 2025 [10] - However, near-term prospects are clouded by end-market volatility and U.S.-China tensions, leading to expectations of lower logic revenues compared to the previous year [10]