ASML Holding Stock Falls 32% in 6 Months: Should You Hold or Fold?

Core Viewpoint - ASML Holding has experienced a significant stock price decline of 32.2% over the past six months, underperforming both the Zacks Computer and Technology sector and the S&P 500 [1][5] Financial Performance - In Q3 2024, ASML reported net sales of €7.5 billion and net income of €2.1 billion, reflecting year-over-year growth of 11.9% and 9.7% respectively, with earnings per share increasing by 9.8% to €5.28 [6] - The company projects Q4 sales between €8.8 billion and €9.2 billion, with a gross margin of 49-50%, indicating potential profitability challenges [7] Market Position and Competitive Landscape - ASML's stock has underperformed compared to peers like Lam Research, Applied Materials, and Advanced Energy Industries, with the latter's shares rising by 8.1% while the former two have seen declines of 24.7% and 28% respectively [2] - Despite the recent decline, ASML maintains a premium valuation with a forward 12-month price-to-earnings multiple of 28.17X, higher than the industry average of 27.86X [12][13] Strategic Initiatives - ASML's High NA EUV systems are crucial for advanced chip manufacturing, particularly for AI and high-performance computing, although they are associated with short-term margin pressures due to high production costs [8][9] - The company has a €36 billion order backlog, indicating sustained demand for its advanced lithography equipment [15] Geopolitical and Macroeconomic Challenges - Geopolitical tensions, especially between the U.S. and China, pose risks, as China accounted for 47% of ASML's lithography shipments in Q3 2024 [10] - Broader macroeconomic issues, including inflation and slowing demand in mobile and PC markets, further complicate the near-term outlook for ASML [11] Long-Term Outlook - ASML is well-positioned for long-term growth, aligning with megatrends such as AI adoption and digital transformation, supported by global investments in semiconductor fabrication plants [16] - The company’s adaptability and commitment to enhancing capacity and supply-chain partnerships are key to meeting rising demand in a rapidly evolving market [16] Investment Recommendation - Given the short-term challenges and the company's strong market position, holding ASML stock is recommended as it allows investors to participate in its long-term growth story while navigating temporary volatility [17][18]