Should you buy shares in ASML now?

ASML, one of the biggest suppliers for the global chip industry, suffered its worst day on the market in 26 years last week. The Dutch technology group warned of a slower recovery in the semiconductor market in a set of results that was accidentally published a day early, cutting its revenue forecast for 2025.
The shares lost more than 15 per cent and now languish roughly a third below their peak of €964 in June, so is it time to buy the dip? Or does the sell-off allude to something more concerning about valuations in the semiconductor industry?
ASML started life in the 1980s as a joint venture between Philips and ASM International, before becoming fully independent in 1995 and listing on the stock market. Now it is a maker of “lithography technology”, putting the circuit patterns on chips that define what they are used for, as well as selling software and services. It has a market share of almost 90 per cent in “extreme ultraviolet” lithography.
Huge global demand for chips has meant that ASML’s business has boomed in recent years — revenue and net income have risen from €11.8 billion and €2.6 billion respectively in 2019 to €27.6 billion and €7.8 billion at the end of last year.
But investors are now worried that a slowdown lies ahead. ASML cut its outlook for next year after reporting orders were only half of what investors had forecast for the third quarter. Analysts have argued that shareholders could not always expect the same extraordinary rates of growth: ASML achieved a 22 per cent compound annual growth between 2016 and 2023. But low double-digit percentage sales growth still looks possible as chip fabrication plants (or “fabs”) proliferate, selling prices rise and more complex systems support further growth in service revenue.
As long as ASML improves the productivity of its machines, it can justify charging higher prices. As analysts at Morningstar put it: if ASML’s equipment prices were to rise by 20 per cent but productivity rises by 40 per cent, the cost per wafer for the chipmaker still falls.
So, while growth looks like it could slow, it is certainly not off the table. But investors should beware of other issues across the chip industry that could affect ASML, not least the influence of the American chip maker Intel.
Wall Street analysts estimate that Intel is ASML’s third biggest customer, behind TSMC and Samsung, and accounts for between 10 and 20 per cent of its revenue. Last month Intel announced it would reduce its capital expenditure by 20 per cent, which is likely to have affected ASML, although it is likely that a rival, probably TSMC, will pick up on demand.
There is also risk connected to China’s influence in the chip market. China typically accounts for around 14 to 18 per cent of ASML’s annual system sales, but it has been ramping up spending to help its domestic chip industry and last year it made up 29 per cent. ASML has said this is likely to fall back to normal levels next year. There are also geopolitical considerations. In the past year shipments of ASML’s most advanced lithography machines have been restricted by both the Dutch and US governments to hamper China’s ability to develop advanced artificial intelligence systems.
ASML shares now trade at 34.8 times expected earnings, below its own five-year average of 40, and much cheaper than the most popular chip name on the market, Nvidia, which trades at a multiple of 48.5.
The steep drop in the shares last week, which also triggered falls in Nvidia, Intel and TSMC, suggests there is some anxiety about semiconductor valuations. But given that ASML has an effective monopoly in a critical part of the industry’s supply chain, it looks strong enough to weather a possible downturn. For long-term investors, it still looks a compelling pick for growth.Advice Buy Why Leading position in critical chip manufacturing process
For investors who are less willing to go out on a limb for ASML, the BlackRock Greater Europe Investment Trust may be a way to hedge their bets.
The £556 million fund counts ASML as its second biggest holding, making up 7.2 per cent of its assets as of the end of August. The trust’s biggest single holding was Novo Nordisk, the Danish pharmaceutical company behind the weight-loss drugs Wegovy and Ozempic, at 8.9 per cent of assets. The FTSE 100 data analytics group Relx was third, at 6.5 per cent.
The investment trust favours quality growth companies — businesses that the managers, Stefan Gries and Alexandra Dangoor, believe represent a strong return on equity and come with promising growth expectations.
Around a fifth of the portfolio is invested in France and a similar proportion in the Netherlands, with the UK only making up 6.5 per cent of the fund. That being said, few companies in the portfolio are domestic plays on Europe — in many cases, like that of ASML, they are global leaders in niche markets.
So far this strategy has played out well. The fund has outperformed its benchmark index, the FTSE All World Europe ex UK index, delivering a total return of 63 per cent over the past five years, compared with 51 per cent from the benchmark.
The trust’s dividend yield is low, at only 1 per cent, and income is not in its official strategy mandate. But the fund has still progressively increased shareholder payouts since its inception in 2004, at an annualised rate of more than 7 per cent, according to analysis by Kepler. In the past decade this has slowed to around 4 per cent. Dividends are paid out twice a year, in December and May.
Shares in the fund trade at a 7 per cent discount to their net asset value, compared with an 11 per cent average discount among other investment trusts that specialise in European stocks, which suggests that investors are beginning to favour this fund over its rivals. A well-diversified portfolio of quality, growth names with a respectable track record for returns certainly warrants a look. Advice Buy Why Quality, growth-focused portfolio at a discount
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