Chip machine maker ASML will grow into a $500 billion business next year, tech investors predict

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  • ASML provides chip makers with the hardware, software, and services needed to mass-produce patterns on silicon using a method called lithography.
  • It is the only company in the world to offer the extreme ultraviolet lithography machines that the likes of TSMC require to make the smallest and most sophisticated chips.
  • Each EUV machine contains over 100,000 parts and costs $150 million.
  • They are shipped in 40 freight containers or four jumbo jets.

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LONDON — ASML, the Dutch firm making high-tech machines used in semiconductor manufacturing, will see its market value grow from $302 billion to more than $500 billion next year, according to two tech investors.

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Nathan Benich and Ian Hogarth, founders and general partners of boutique VC firm Air Street Capital, which sold their AI start-up Songkick to Warner Music Group, wrote Tuesday in their annual “State of AI” report that Europe’s largest tech company is a little-known “linchpin” in the global semiconductor industry.

Founded in 1984, ASML provides chip manufacturers with the hardware, software, and services needed to mass-produce patterns on silicon using a method called lithography.

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It is the only company in the world to offer the extreme ultraviolet lithography machines that the likes of TSMC require to make the smallest and most sophisticated chips.

Each EUV machine contains over 100,000 parts and costs $150 million. They are shipped in 40 freight containers or four jumbo jets.

closing the gap

Hogarth told Businesshala that while global chip shortages caused by the coronavirus pandemic have seen their stock prices skyrocket, ASML’s share price still has some room to go.

He said ASML’s market cap isn’t on the same scale as the likes of Nvidia or TSMC because it is in Europe, where the market values ​​high-tech firms slightly, and because its technology is more behind the scenes.

Nvidia is currently valued at $521 billion, while TSMC is valued at $533 billion.

“As people make more and more significant investments in this trend of semiconductors for global supply chains, it (ASML) realizes it’s a clear candidate,” Hogarth said.

The development of ASML will be fueled by the desire of some countries to build onshore chips and reduce dependence on other countries. Most of the world’s chips are currently made in Asia.

“If China is going to manufacture the equivalent of TSMC or some of the major US semiconductor companies today, they need to buy a lot of these (EUV) machines,” Hogarth said. “Therefore, the more countries that consider this technology to be part of their dominant sovereignty, the more machines are sold.”

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Last month, ASML said it expected a sales boom over the next decade. It believes that annual revenue will reach 24–30 billion euros (28–$35 billion) by 2025, with gross margins between 54% and 56%. The forecast is much higher than the 15-24 billion euro range it had previously estimated. “We see significant growth opportunities beyond 2025,” the company said, adding that it expects to achieve an annual revenue growth rate of approximately 11% between 2020 and 2030.

ASML stated that “global megatrends in the electronics industry” as well as “a highly profitable and fiercely innovative ecosystem” are expected to fuel growth in the semiconductor market.

It added that growth in the semiconductor markets and “increasing lithography intensity” are driving demand for its products and services.

Over the past 12 months, the share price of ASML on the Stock Exchange of Amsterdam has risen from EUR 328 on last Friday to EUR 646, up from around EUR 753 on 23 September.

not everyone is so bullish

In a note to investors dated September 28, analysts at New Street Research argued that “semicap expectations are too high” and that ASML has “limited” upside in 2022 as it “remains a supply constraint in the EUV.”

The firm has a positive five-year outlook on ASML, but it has downgraded the “strategic” stock to “neutral” for now.

Elsewhere, UBS also has a neutral rating on ASML’s stock. In a note to investors dated September 29, analysts at the investment bank said, “We remain highly confident of ASML’s growth potential over the medium term, but … we struggle to see strength in stocks in the 12-month view.” “

Hogarth said he thinks analysts are ignoring the “geopolitical dimension” and not acknowledging how much money nations are spending on manufacturing their sovereigns when it comes to semiconductors.

Last year, Benich and Hogarth predicted that Nvidia’s acquisition of British chip designer Arm would be blocked by regulators. Shortly after making their predictions, regulators around the world announced a series of investigations into the deal, which is still ongoing.

This year, they are also predicting that there will be a “wave of consolidation” in the AI ​​semiconductor industry, with “at least one GraphCore, Cerebras, Sambanova, Grok, or Mythic being acquired by a large technology company or major semiconductor.” Depends.”

He also believes that Alphabet’s DeepMind artificial intelligence lab will lead to a “major research breakthrough in physics.”

Disclaimer: Nathan Benaich personally owns ASML Shares. Ian Hogarth has none.

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