Why KLA, ASML, and Lam Research Stocks All Dropped Today

Core Viewpoint - The announcement of DeepSeek's new open-source large language model (LLM) has raised concerns about the future demand for advanced semiconductor chips, impacting semiconductor manufacturing equipment stocks significantly [1][2][3]. Semiconductor Manufacturing Equipment Stocks - Shares of semiconductor manufacturing equipment companies such as Lam Research, KLA, and ASML have seen declines, with Lam Research down 5.6%, KLA down 6.3%, and ASML down 6.5% as of 11:55 a.m. ET [3]. - The sales of these companies have slumped in 2024 due to prior equipment purchases by China and ongoing sanctions limiting further sales [5]. - There are concerns that if China can produce LLMs with fewer and cheaper chips, it may not need to expand production capacity, leading to slower global sales of semiconductor manufacturing equipment [6]. Valuation and Growth Projections - Lam Research is currently valued at just over 25 times trailing earnings, KLA at 34 times, and ASML at 40 times, indicating varying levels of valuation among these stocks [8]. - Long-term earnings growth estimates suggest that Lam and KLA are expected to grow earnings at about 15% annually over the next five years, while ASML is projected to grow at 17% [9]. - The current growth projections may be overly optimistic given the implications of DeepSeek's announcement, potentially leading to higher PEG ratios and lower actual growth rates than previously anticipated [10]. Investment Considerations - The current sell-off in semiconductor manufacturing equipment stocks may not yet present a clear buying opportunity, and a margin of safety is advised before making investment decisions [11].