ASML Beat & Raise Adds AI Trade Muscle, Mag 7 Earnings Must Confirm Strength

Molly (0:00)

For more on ASML, let's bring in our panel to take a closer look at the chip space. Joining us, Gil Luria, Managing Director and Head of Research at DA. Davison, and Steven Dickens, CEO and Principal Analyst at Hyperframe. Gil, let's start with you here. What are your takeaways from what we got from ASML, and also this sort of tepid reaction to what we got?

Gil Luria (0:20)

Yeah, it's actually another very positive data point, a long list of very positive data points that we've gotten from everybody in this whole value chain. What they're saying is this is about one of the most conservative companies. They are a monopoly on the type of machine that they make that makes the very cutting edge chips. And they have been very consistent over the last couple of years saying, look, we're not gonna make as much as the market will take right now because we wanna make sure we're not inflating a bubble.

And so when they say what they said today, which is we're exceeding our expectations, we're increasing our capacity for next year, we will not be able to meet demand through 2028, and we're already getting orders into 2030 That is a very positive signal that comes after very positive signals from all the chip companies, from all the chip manufacturing companies, and including the labs. Anthropic will be giving probably very positive results today of their analyst day. So it's another very positive data point and a long line of very positive data points about the AI build out.

Molly (1:29)

And Steven, how are you looking at the results that we got? Are you viewing them positively, and why isn't the market rewarding this outlook and visibility that we got?

Steven Dickens (1:40)

So, Molly, this is a classic picks and shovels play with ASML. The company, what was it, 55 percent growth in the quarter. I think if anybody else was looking at these numbers, there'd be sort of market action. I think we're talking about a company that shipped 121 systems in the quarter. These lithography machines are huge, multiple hundreds of millions. So I think movement either side of that by even a couple of systems is material to the revenue. I think from my perspective, this is underpinning a lot of what we're seeing as the AI trade. These guys are obviously, as Gil mentioned, largely a monopoly to some of those semiconductors names. So I think as the market goes, largely ASML goes, I think if we'd have seen their earnings maybe a couple of weeks ago, we may have seen a different story. So I wouldn't read too much into the sort of intraday trading on these. I think Gil touched on it and I would agree. The foundational pieces here, this company's got a robust order book out until as long as 2030 They're giving us guidance towards that and the demand is still outstripping supply. So lots to be bullish on from my perspective on ASML.

Molly (3:02)

So Gil, if one of the real drivers here to this tepid reaction to the downside despite great numbers and raising their outlook for the third time this year is deteriorating sentiment when it comes to semis, what does that mean for the setup of the names we're about to hear from in the coming weeks?

Gil Luria (3:19)

Yeah, so first of all, they just have bad luck today. The stock is up, but reporting on a day where inflation is high, which means interest rates are going higher, which means funding data centers is going to be more expensive.

The AI stocks are now are down a lot today. It's one of the worst days for semis and NeoCloud that we've had in a while. So reporting that day is just bad luck. I'd say on a regular day, the stock would be up even more. And again, an indication to your point of things to come. We are likely to hear more positive things from the semis' customers. Those are the big hyperscalers, Microsoft, Google and Amazon will report in a couple of weeks. And they'll tell us that their cloud business has accelerated. And then we're going to get the chip companies reporting that their growth is accelerating. So again, this is the latest in a very long line of positive reports that are telling us that not just things are good, we already knew they were very, very good, but the things have gotten better in the last three months. That all these companies are saying, not only are we exceeding expectations, we're increasing our outlook, our visibility is going further out. And mind you, we hear a lot of negative headlines at the same time, including higher interest rates, pushback on data center construction, various bottlenecks, energy issues.