ASML Earnings Show No Slowdown in AI Trade as Demand Outpaces Supply

SPEAKER_1 (0:00)

Back on Morning Trade Live. Let's focus on the one day chart for ASML after the company reported its latest quarterly results. We saw a nice performance for European listed shares. The ADR trading slightly lower right now. It's not as bad as the rest of the bunch, with obviously just this to the downside decline here, but obviously it seems to be getting pressured by some of the sell-off we're seeing across the border space today in semis. So let's talk about this earnings report, what we learned, because it is the focus of the Morning Trade. Joining us for Closer Look is Jenny Kovacs. Good morning, Jenny. Just run us through the key highlights here.

Jenny Kovacs (0:36)

Well, I will say there was still a lot to like, and I know that we've seen some shop around the price performance today, but actually slightly higher now, and at least seeing objectively strong numbers. I mean, that was definitely a clear win here. His revenue was, I mean, strong, $13.6 billion when you convert into US dollars, $13.45 billion roughly around there. Some reports did indicate that sales were slightly below expectations, but that's depending on what analysts or consensus you were pulling from. So all that to be said, it was still a really strong number. And AI, the story around that only got stronger. I think that one of the most critical watch items was the fact that they actually said that overall that their plan capacity for 2027 and 2028 will not be able to fully meet their customer demand, suggesting this AI infrastructure build does remain relatively supply constrained. That being said, though, it only signals how strong AI demand truly is. They said their customers continue to raise equipment forecasts and are already discussing some of the orders now for 2029 and 2030

And so guidance was raised yet again. They now expect some upside to their revenue guidance for 2026, marking their third increase to their annual outlook just this year. And their installed base management also did see some huge upside driven by productivity upgrades, really showing that customers are not only just spending on new tools, but also getting more output from these existing fabs. And so right now, we're expecting fourth quarter guidance was strong. We saw roughly 57 percent gross margins.

Now, the one again may be concerned was the fact that perhaps we'd wanted an even bigger B tier as there was a lot of enthusiasm tied to this name going into this report. And so it seems like even though the overall theme and the takeaways were very strong, good is just not good enough. And again, lifting their outlook again, their gross margins were above guidance. Net income reached approximately 5.8 billion. And also the market is reacting to a quarter that was not maybe a blowout. But the most important commentary, it seems like, was not the quarter itself, but everything right now regarding their advanced lithography tools that are exceeding their planned supply through again, 2028, with some of these more long-term targets that are showing really the nature in which this space has evolved. It's no longer highly cyclical. It seems like some of these longer-dated targets, the sort of longer-dated timeframes really show that they believe demand is here and demand will last for quite some time. So, I think the most bullish read is everything tied to AI infrastructure still, and the negative reaction appears to be more tied to some of the elevated expectations. But again, I would say not necessarily negatives. We're slightly higher here, adding to a near 60.7% gain on the year, Sam.

SPEAKER_1 (3:19)

We're trying, we're trying to turn positive here. It was a positive session out in Amsterdam last night. I did see that, but yeah, it just makes you wonder. I mean, this is a bellwether of the global chip industry. It is really seen as a barometer. I mean, it's got the visibility, demand is strong, capacity sold out this year and into next year. You just wonder how much more have these guys got to say, but Jenny, great breakdown. Thanks so much for the details of that. We'll continue to watch this one, but let's trade it now with Scott Bauer, CEO of Prosper Trading Academy.

Scott, good morning. It's turning out to be a real tough one. I mean, high bar, they cleared it. I mean, what more can they say? But we're on the flatline right now, trying to turn positive here.

Scott Bauer (3:59)

You know, I think flatline in this environment with the news flow this morning is absolutely bullish for ASML. And, you know, when you break it down, and what Jenny was just talking about, it's basic economic supply and demand. They don't have enough supply to meet demand, right? That may, people may look at that and say, oh man, you got to ramp it up, but what happens in that scenario in basic economics, right? That's typically a good thing. I'm very bullish here. I'm going out a few weeks. I'm buying the October 30th, 1775-1800 call spreadsheet. Looking to pay about $5.