ASML Holdings, the Dutch semiconductor equipment giant, reported strong fourth-quarter earnings, exceeding expectations despite ongoing concerns about the impact of China's DeepSeek AI model on chip demand. The company also provided an optimistic outlook for 2025, driven by the growth of artificial intelligence.
The US stock market, particularly the tech sector, continues to grapple with the impact of the new cost-to-performance efficiency standard set by China's DeepSeek AI model. While ASML 's earnings report covers Q4 2024, ending December 31st, preceding DeepSeek's public unveiling, retail investors should remain mindful of the semiconductor demand momentum. ASML holds a monopoly on its extreme ultraviolet (EUV) lithography machines, first delivered to TSMC in 2014.
This technology facilitated TSMC's launch of 7nm chips in 2018, now ubiquitous in smartphones, tablets, and PCs. With the introduction of High Numerical Aperture (High-NA) Extreme Ultraviolet (EUV) lithography machines in late 2023, 2nm chip manufacturing emerges as the next frontier in computing cost-efficiency. This position of technological dominance has placed ASML under close scrutiny by the US government, leading to export controls. However, in early December 2024, ASML reassured investors that new restrictions would not significantly impact the company's long-term financial performance. The latest earnings report supports this assessment. ASML achieved €9.26 billion in net sales, representing a 24% increase quarter-over-quarter. The company also exceeded the net income forecast of €2.64 billion, reaching €2.69 billion. For the full year 2024, net sales amounted to €28.26 billion (€27.56 billion in FY23), and net income reached €7.57 billion (€7.84 billion in FY23). ASML's gross margin, calculated as revenue minus the cost of sales, surpassed the company's guidance at 51.7%. Notably, ASML's net bookings, a key indicator of semiconductor demand, increased dramatically. The company recorded €7.08 billion worth of new orders, reflecting a 169% surge from €2.63 billion in Q3, exceeding the Visible Alpha polling expectation of €3.99 billion. Expectedly, EUV machines accounted for the majority of net bookings at €3 billion, surpassing the entire order lineup in the previous quarter. For Q1 guidance, ASML anticipates net sales between €7.5 billion and €8 billion, with an elevated gross margin ranging from 52% to 53%. The company maintains its October expectation for full-year 2025 net sales to reach up to €35 billion, with a bottom expectation of €30 billion, significantly higher than the reported €28.3 billion for FY24. While DeepSeek's purported training efficiency, requiring over three times fewer GPUs, is a significant development, it's essential to remember that it's only one aspect of the demand equation. Even if US-based Big Tech adopts these training and reinforcement learning (RL) techniques, extensive AI infrastructure will still be necessary to deliver results promptly to users. Beyond avoiding server congestion, which DeepSeek already experiences, further demand is anticipated if AI models demonstrate increased accuracy and consistency. The market's reaction to DeepSeek might be perceived as an overreaction in the coming months. Meanwhile, Alibaba, the Chinese equivalent of Amazon, appears to have an even more advanced AI model than DeepSeek. However, this, too, highlights the advantage of open-source technology, explaining why Alibaba's announcement failed to impact US stocks. The potential for lower AI costs to drive more applications, subsequently increasing demand for chips over time, presents a compelling opportunity for ASML.
ASML Earnings Semiconductors AI Deepseek Chip Demand EUV Lithography Artificial Intelligence Technology Trends
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