Semiconductor Equipment Spending Will Head Higher in 2025: 1 Top Stock to Buy Before That Happens

Industry Overview - The semiconductor equipment industry experienced a turnaround in 2024 after a challenging 2023, with sales declining by 1% to $106 billion [1] - Sales of semiconductor equipment are projected to rise by 6.5% in 2024 to $113 billion, with expectations of reaching a record $121 billion in 2025 and $139 billion in 2026 [2] Company Focus: ASML Holding - ASML is positioned to benefit from the growth in semiconductor equipment spending, with expectations of its revenue increasing to between 30 billion euros and 35 billion euros in 2025, representing a 16% increase at the midpoint [5] - ASML's order backlog was valued at 36 billion euros at the end of Q3 2024, indicating strong demand and potential for exceeding revenue guidance [5] - The company received bookings worth 11.8 billion euros in the first nine months of 2024, slightly higher than the 10.8 billion euros in the same period last year, despite tight spending from customers [12] Financial Performance and Projections - ASML's earnings are expected to grow by 22% in 2025, with a stronger increase anticipated in 2026 [13] - If ASML achieves earnings of $31 per share in 2026 and trades at 35 times earnings, its stock price could reach $1,085, representing a 53% increase from current levels [8] - ASML's stock underperformed in 2024, with shares down 5%, contrasting with a nearly 24% gain in the PHLX Semiconductor Sector index [9] Market Dynamics - The demand for advanced chips produced using EUV lithography machines is robust, with major companies like Apple, Nvidia, and AMD utilizing advanced process nodes [4] - The semiconductor industry is expected to see significant capacity additions, with 17 new fabrication plants anticipated to come online next year, nearly doubling the capacity added this year [15] - ASML holds a monopoly-like position in the EUV lithography market, which is critical for advanced chip manufacturing [16]