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ASML generates steady cash flows from servicing existing equipment and its DUV business.
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EUV is ASML’s AI-powered growth engine.
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ASML’s valuation is reasonable given the quality of its earnings.
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10 stocks we like better than ASML ›
When investors think about leading artificial intelligence (AI) growth stocks, names like Nvidia, Broadcom, and Advanced Micro Devices may come to mind. And while these three chip designers are redefining modern data centers, there’s an equally important semiconductor company that should be getting equal attention.
ASML (NASDAQ: ASML) is the most valuable publicly traded company in Europe. American depositary receipts (ADRs) of ASML currently change hands at around $1,000 a share. Here’s why buying one share of ASML would be my top pick for investors looking to put $1,000 into AI growth stocks right now.
ASML’s business can be split into three main categories: 1. servicing its installed equipment base, 2. deep ultraviolet (DUV) device production, and 3. extreme ultraviolet (EUV) device production. Servicing the installed base provides steady cash flows and mainly involves DUV equipment. DUV is used for a big chunk of chip manufacturing, especially for non-critical layers. Think legacy analog and information technology chips. It’s really only when the resolution demands nodes with wavelengths shorter than 7 nanometers that EUV is needed. ASML’s most advanced EUV machines can even handle nodes below 3 nanometers. EUV is critical for chips used in logic and memory, such as AI chips and dynamic random access memory (DRAM) used in data centers and smartphones.
ASML’s latest earnings report from Oct. 15 reinforced why the company is a consistent bet for long-term AI investors. EUV made up 48% of net sales, while installed base management was 27% and DUV was 25%. That means an increasing number of ASML’s sales to semiconductor fabrication plants is equipment used to make advanced chips.
ASML is a simple way to bet on growing AI chip production, regardless of which hyperscaler, chip designer, or manufacturer is gaining market share. ASML wins as long as the pie is growing. It doesn’t care how it is sliced. In this vein, it is a classic pick-and-shovel play that should benefit from the AI gold rush. And best of all, the stock is reasonably priced.
ASML sports a forward price-to-earnings (P/E) ratio of 36.3. It’s not dirt cheap, but it’s a fair price for a company that has a virtual monopoly on equipment that is used to make the most advanced AI chips in the world.
