ASML’s stock, which is the largest provider of machinery used in the production of computer chips, dropped on Wednesday due to the possibility that increased pressure from the US government will result in more stringent export regulations to China.
TakeAway Points:
- ASML, the largest provider of machinery used to make computer chips, saw a decline in its stock price on Wednesday due to the possibility that increased pressure from the US government will result in more stringent export regulations to China.
- According to LSEG figures, net income for the quarter ended June 30 was 1.6 billion euros ($1.74 billion), up 19% from the same period last year but more than experts’ projected 1.41 billion.
ASML stock drops
The investor concerns overshadowed second-quarter earnings at Europe’s largest technology company, which beat forecasts and showed a rise in AI-linked bookings.
Shares dropped by around 6% in early trading after Bloomberg reported on Tuesday that the U.S. is telling allies, including the Netherlands, that it may take unilateral action to restrict exports of chip equipment to China if they fail to do so themselves.
ASML, which is already restricted from selling most of its advanced product lines in China, declined comment. The Dutch foreign ministry could not immediately be reached for comment.
In his first results as CEO, Christophe Fouquet said ASML continued to view 2024 as a “transition year” with broadly flat performance as it prepares for a strong 2025.
“We currently see strong developments in AI, driving most of the industry’s recovery and growth, ahead of other market segments,” Fouquet said in a statement.
LSEG data revealed that net income for the quarter ended June 30 was 1.6 billion euros ($1.74 billion), up 19% from the same period last year but beyond analysts’ expectations of 1.41 billion.
Revenue fell 9.5% to 6.2 billion euros but topped an analysts estimate of 6.04 billion.
ASML dominates the market for lithography systems, complex tools that use lasers to help create the tiny circuitry of computer chips.
Older generation chips
Chinese chipmakers, facing escalating U.S.-led restrictions on ASML’s top-end gear, have increased purchases of equipment used to make older generations of chips widely used in cars and industrial applications.
China, usually ASML’s third market after Taiwan and South Korea, accounted for more than 2 billion euros in lithography system sales in the second quarter, around 49% of the total.
Analysts linked the fall in share price to the Bloomberg report and remarks Bloomberg published from a June interview with U.S. presidential candidate Donald Trump in which he said Taiwan had taken “100% of our chip business.”
ASML’s top customer is Taiwan’s TSMC, which makes chips for Nvidia and Apple.
“The geopolitical angle… is more likely to be in focus today than the results,” Citi analysts wrote in a note.
“The arguments being referenced [in the Bloomberg report] are not new, but pressure is building” for further restrictions, they said.
Shares in Europe’s second-largest listed company behind pharmaceuticals maker Novo Nordisk fell 5.8% to 920.50 euros at 0742 GMT, pulling other European chip stocks lower. ASML’s shares are up 36% in the year to date.
ASML’s Earnings Report
In the earnings report, new bookings increased to 5.6 billion euros from 3.6 billion euros in the first quarter, with about half of that coming from its most advanced EUV product lines, – vital to manufacturing AI and smartphone chips.
Analysts had expected ASML’s order book to increase to about 5 billion euros, according to estimates compiled by Visible Alpha.
“EUV orders increased substantially” in the quarter, Mihuzo Securities analyst Kevin Wang told Reuters. “We attribute this to strong orders from TSMC and Intel.”
TSMC, Intel, and Samsung are engaged in new construction projects that will be outfitted with equipment in 2025-2027.
