ASML Stock Underperforms Tech Sector in a Year: Time to Let Go?

Core Viewpoint - ASML Holding has underperformed compared to the broader tech sector, raising concerns about its future prospects and potential investment decisions [1][2][14]. Financial Performance - ASML's Q3 2024 results showed net sales of €7.5 billion, an 11.9% year-over-year increase, and net income of €2.1 billion, up 9.7% [3]. - Earnings per share rose 9.8% to €5.28, indicating operational efficiency despite muted guidance for Q4 [3][4]. Guidance and Market Outlook - The company projects Q4 sales between €8.8 billion and €9.2 billion, with a gross margin of 49-50%, reflecting margin pressures [4]. - Management warned of weaker order intake in 2025 due to slow recoveries in mobile and PC markets, leading to downward revisions in earnings estimates by analysts [4][14]. Technological Developments - ASML's High NA EUV systems are crucial for advancing chip manufacturing, particularly for AI and high-performance computing, but their production costs are straining profitability [6][7]. - A 3.5% margin dilution is expected in Q4 due to ramp-up costs for High NA EUV production, with this trend likely to continue [7]. Geopolitical and Macroeconomic Risks - Geopolitical tensions, particularly with China, pose significant risks, as 47% of ASML's lithography shipments were to China in Q3 2024 [8]. - Macroeconomic challenges, including inflation and a sluggish recovery in mobile and PC markets, further complicate ASML's situation [9]. Valuation Concerns - ASML's forward 12-month P/E ratio stands at 28.46X, higher than the sector average of 26.32X, indicating a premium valuation that limits immediate upside potential [10][13]. - The stock has a Zacks Value Style Score of D, suggesting a stretched valuation, making it less attractive for value or growth investors [13]. Conclusion - Given the significant near-term challenges, including weaker guidance, profitability pressures, geopolitical risks, and macroeconomic headwinds, ASML appears overextended [14][15]. - Investors are advised to consider selling ASML shares and reallocating capital to better-performing or undervalued opportunities in the tech and semiconductor sectors [15].