Buy ASML Holdings (ASML) : Stock Recommendations

Did you know that you’re able to read this article on your computer or mobile phone thanks, in part, to ASML? This is because the integrated circuit, a critical component of your device, was built by a machine that was probably built by ASML. ASML is a major global supplier of wafer fabrication equipment.

The first integrated circuit (IC) was built in the 1950s. It was a seminal moment that allowed the development of the IT industry as we know it today. Since then, scientists and engineers have made steady progress making the components of the IC smaller, more reliable, and better able to compute. It is due to these developments that everyday people like you and I can afford a computer, carry it in our pocket, and store more information more cheaply than ever before.

ASML has prospered with this industry. In 2020 it earned 14 billion euros in revenue and 4 billion euros in operating profit. Its largest customers are the world’s major foundries, primarily Taiwan Semiconductor Manufacturing (NYSE: TSM), Samsung, and Intel (NASDAQ: INTC). Its revenue comes from two sources: selling machines that make ICs and servicing those machines.

The demand for constantly improving ICs requires that ASML produce machines capable of building them. The next generation of machines will rely on technology called extreme ultraviolet (EUV) lithography, which allows the creation of even smaller components on the IC. We expect this to provide a boost to ASML’s sales as foundries upgrade their equipment over the next few years. In fact, ASML expects total net sales of between 3.9 billion euros and 4.1 billion euros this quarter (Q1 2021), a 60% increase from the prior-year period. This is anticipated to be an unusually good quarter — for the whole of 2021, the company predicts revenue growth of 12%.

ASML has a strong competitive moat due to its technological expertise, global installed base of machines, relationships with customers, and abundant income to support future R&D efforts. Macroeconomic trends are in its favor too, as humanity makes more and more devices “smarter.” These trends require ICs and ASML.

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